Use the following for the next four questions:

Fracking, Inc. is considering a replacement project. The required return is 10% and the tax rate is 30%. If the firm purchases the new equipment, net working capital will have to be increased by $100,000 immediately.

	New Equipment		Old Equipment
		Current book value	$400,000
Acquisition Cost	$800,000	Current market value	$500,000
Life	5 years	Remaining life	5 years
Annual sales	$400,000	Annual sales	$400,000
Cash oper. Expenses	$150,000	Cash Oper. Expenses	$260,000
Annual Depreciation	$160,000	Annual Depreciation	$80,000
Acctg. Salvage Value	$0	Acctg. Salvage Value	$0
Expected Salvage Val.	$200,000	Expected Salvage Val.	$0

(Note: Be careful on the cash flow signs. Sales dont change. This is a cost-cutting project. A reduction in operating costs is exactly the same as an increase in sales, all else equal.)

#1 The net initial outlay for the proposed Fracking project would be closest to:

$430,000

$500,000

$530,000

$560,000

#2

The net change in after-tax operating cash flow for year 1 for the proposed Fracking project would be closest to:

$88,000

$93,000

$98,000

$101,000

#3

The terminal year after-tax TOTAL cash flow for the proposed Fracking project would be closest to:

$325,000

$341,000

$372,000

$394,000

#4 Based on the information provided, Fracking should:

Reject the project because the NPV is negative

Accept the project because the NPV is between $0 and $5,000

Accept the project because the NPV is between $5,001 and $15,000

Accept the project because the NPV is greater than $15,000