The Dawn Co. is considering the purchase of new machines in order to expand their business. The machines have a useful life of five years. The required rate of return for the expansion is 17%. The companys tax rate is 40%.

Purchase price of new machines $450,000

Installation charges $50,000

Increased revenues from expansion $200,000/year before taxes

Salvage value at the end of the fifth year $175,000

a. What is the cash outflow at t = 0?

b. What are the deprecation deductions if the machines fall in the MACRS five-year class?

c. What is the book value of the machines at the end of year five?

d. What is the taxable gain/loss from the sale of the machines at the end of the useful life if they are sold for the estimated salvage value?

e. What is the tax on the sale of the machines at the end of year five?

f. What is the terminal year non-operating cash flow (cash proceeds from the sale)?