Your company is considering an investment which requires an initial capital expenditure of $180,000 at t=0, which can be fully depreciated according to the below MACRS table. The project has an economic life of four years. The machine will have zero salvage value. The project will generate revenues of $110,000 per year. Annual operating costs (not including depreciation) are forecasted to be $40,000. Your company's WACC is 10%, and it faces a 21% corporate tax rate.
MACRS Table
Year Depreciation
1 18%
2 42%
3 25%
4 15%
What is the project's NPV?
a.$33,468
b.$79,000
c.$25,572
d.$48,648
e.$41,891
2.Your company is considering buying a machine that will cost $600,000 at t=0. After considering revenues, costs, depreciation, and taxes, you determine that the machine will generate (after tax) operating free cash flows of $300,000 per year for 3 years. At the end of the 3-year life, the machine will have remaining book value of $150,000, but you expect the machine can be salvaged at that time for $240,000. Your company's WACC is 15%, and it faces a 21% corporate tax rate. What is the NPV of this project?
$144,144
$209,633
$342,632
$230,344
$328,972
