1. Sway's Back Store is considering a project which will require the purchase of $5 million in new equipment. The equipment will be depreciated straight-line to a book value of $0.5 million over the 5-year life of the project. Annual sales from this project are estimated at $950,000. The variable cost is 40% of the annual sales and there is an annual fixed cost of $100,000. Sway's Back Store will sell the equipment at the end of the project for a salvage value of $0.7 mil. Additional net working capital equal to $0.4 mil to support the project. All of the new net working capital will be recouped at the end of the project. The firm desires a minimal 10% rate of return on this project. The tax rate is 40%. You can use the following tables to construct the cash flows necessary for the NPV calculation. (15 points)

1. What is the annual depreciation?

***Straight-line depreciation expense = (Beginning Value Ending Value) / life expectancy

2. What is the TAX on salvage?

***Taxes on Salvage = Tax rate * Capital Gain

3. What is the operating cash flow?

***Operating Cash Flow = (Sales-Costs-Depreciation) Taxes + Depreciation

or = Net Income + Depreciation

4. What is the projects NPV?