www.mhhe.com/ 9. Calculating NPV Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.75 million. The marketing department predicts that sales related to the project will be $2.1 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $575,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 35 percent. The required rate of return is 14 percent. Should the company proceed with the project? 10. Calculating EAC You are evaluating two different silicon wafer milling machines. The Techron I costs $490,000, has a three-year life, and has pretax operating costs of $90,000 per year. The Techron I costs $620,000, has a five-year life, and has pretax operating costs of $97,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $76,000. If your tax rate is 35 percent and your discount rate is 14 percent, compute the EAC for both machines. Which do you prefer? Why? 11. Cost-Cutting Proposals Blue Line Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $485,000 is estimated to result in $179,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $45,000. The press also requires an initial investment in spare parts inventory of $15,000, along with an additional $4,000 in inventory for each succeeding year of the Que project, If the shon's tax rate is 35 percent and the project's required return is 9 percent, should the