You have been asked by the president of your company to evaluate the proposed acquisition of a new project for the firm. The equipment needed for this expansion project would cost $135,000. This equipment has a 5-year life and would be depreciated using straight-line depreciation to zero by the end of year 5. It will be sold for $40,000 at the end of year 5. The use of the new equipment would require an increase in net working capital of $5,000. There would be an increase in sales of $62,000 per year and the new project would require an annual cash operating expense of $30,000. At the end of year 5, the firm will recover the net working capital of $5,000. The firms marginal tax rate is 30%.

Initial cahs flow: $140,000

Operating income before taxes: $5,000

After tax operating cash flow: $30,500

Total after tax cash flow in year 5: $63,500

Question 34 (2.5 points) Saved What is the net present value (NPV) for the project if the cost of capital is 8%? Would you accept the project under the NPV rule? 1) Accept the project since the NPV is $4,237 2) Accept the project since the NPV is $4,536 3) Accept the project since the NPV is $10,536 4) Reject the project since the NPV is - $4,536 5) Reject the project since the NPV is -$10,536 Question 35 (2.5 points) What is the modified internal rate of return (MIRR) for the project if the cost of capital is 8%? Would you accept the project under the MIRR rule? 1) Accept the project since the MIRR is 14.04% 2) Accept the project since the MIRR is 12.94% 3) Accept the project since the MIRR is 8.65% 4) Reject the project since the MIRR is 14.04% 5) Reject the project since the MIRR is 12.94%