You are considering a five-year project. New equipment would cost $1,225,000, and would be depreciated straight-line to $250,000 over 5 years. At the end of the project, the company can sell this equipment for $100,000. You would also need to increase the net working capital by $25,000 for the duration of the project. At the end of the project, net working capital would revert to the previous level. This project would increase sales each year by $900,000, but would also increase costsby $600,000 each year. Your company pays a marginal tax rate of 8%, and discounts projects like this at 9% interest.

How much is depreciation each year?

what is the operating cash flow?

what is the after-tax salvage value of the equipment?

Sketch a timeline to illustrate the relevant cash flows in the space below (Year 0 = x; Year 1 = y; Year 2 = z, and etc.).

What is the net present value of this project? Do you accept or reject?