Year 1 Year 2 Year 3 Year 4 Sales (units) 3,000 3,250 3,300 3,400 Sales price $17.25 $17.33 $17.45 $18.24 Variable cost per unit $8.88 $8.92 $9.03 $9.06 Fixed costs, excluding depreciation $12,500 $13,000 $13,220 $13,250 Accelerated depreciation rate 33% 45% 15% 7% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Blue Llama Mining pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project's net present value (NPV) is When using straight-line depreciation, the project's NPV is Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Blue Llama Mining turns it down. How much should Blue Llama Mining reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $700 for each year of the four-year project? $1,303 $2,172 $1,846

Year 1 Year 2 Year 3 3,300 3,250 $17.33 Sales (units) 3,000 Sales price $17.25 Variable cost per unit $8.88 Fixed costs, excluding depreciation $12,500 Accelerated depreciation rate 33% Year 4 3,400 $18.24 $9.06 $13,250 7% $17.45 $9.03 $13,220 15% $8.92 $13,000 45% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Blue Llama Mining pays a constant tax rate of 40%, and it has a required rate of return of 11% When using accelerated depreciation, the project's net present value (NPV) is When using straight line depreciation, the project's NPV IS Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Blue Llama Mining turns it down. How much should Blue Llama Mining reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $700 for each year of the four-year project? $1,303 $2,172 $1,846