The following are the cash flows of two independent projects:

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,900 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,900 a year in expenses. The opportunity cost of capital is 18%, and the firms tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.) b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

a. If the opportunity cost of capital is 10%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,900 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,900 a year in expenses. The opportunity cost of capital is 18%, and the firms tax rate is 21%.

a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.)

b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Is the factory a good investment?

multiple choice

• Yes

• No