1. Straight line depreciation: A piece of equipment cost $150,000 and has a 5-year useful life. What is the annual depreciation expense under straight-line depreciation? 30,000

2. MACRS Depreciation: If your company purchases some new production equipment, with a cost of $120,000 and installation costs of $5,000, what is the final years depreciation expense under the 5-year MACRS table? 7,200

3. After-tax CF from Salvage: If you paid $98,000 for some machinery that was depreciated using the 5-year MACRS table, and you sold the machinery for $15,000 at the end of year 6, what would be the after-tax cash flow from salvage if your company is in a 35% tax bracket?

9750

4. Create a pro-forma income statement, and enter the Year 5 net income:

Your company is currently considering the purchase of a new production machine at a cost of $55,000 (including installation costs) and expects to increase revenues by the following amounts each year as a result of the new equipment:

Year 1 = $19,000

Year 2 = $28,000

Year 3 = $30,000

Year 4 = $35,000

Year 5 = $15,000

Year 6 = $10,000

Fixed costs for running the new equipment will be $5,000 per year, while variable costs will be 15% of sales. The assets depreciate according to the 5-year MACRS table. The company is not currently paying any interest expense, and they are taxed at 31% of EBIT.

7,311.66?

5. Operating cash flows: Refer back to the data you received in problem #4. After you have calculated the Net Income, calculate the Operating Cash Flows (OCFs) and enter the year 3 OCF:

17,418?

6. Startup or initial costs (Year 0 costs): Continuing with the problem and data in #4 above, if the company paid $52,000 for the equipment, $3,000 for installation costs, and $8,000 for an increase in net working capital (mainly increase raw materials inventory to support the added machinery), calculate the initial years total cash outflow.

63,000?

7. After-tax CF from Salvage: Continuing with the example in #4, if at the end of the useful life of the equipment, the company can sell it for a salvage value of $3,000, what is the after-tax cash flow from salvage in the terminal year? (Remember that the tax rate is 31%).

2,070?

8. Terminal year CFs: Continuing with the example in #4, what is the total year 6 cash flow resulting from this project (equipment purchase)?

13,467.08?

9. Payback period: Using the data from problems 4 through 8, calculate the payback period for this equipment.

10. Discounted payback period: Using the data from problems 4 through 8, calculate the discounted payback period, based on 9% required rate

11. NPV: Using the data from problems 4 through 8, calculate the NPV using a 9% required rate of return (WACC)

2,419.18

12. IRR: Using the data from problems 4 through 8, calculate the IRR of this project.

10.31%

Please Answer Questions 9 and 10 if possible