Problem Solving (60 pts.) 1) What is the NPV of a $45,000 project that is expect

Question

Problem Solving (60 pts.) 1) What is the NPV of a $45,000 project that is expected to have an after-tax cash flow of S14,000 for the t. first two years, $10,000 for the next two years, and $8,000 for the fifth year? Use a 10% discount rate Would you accept the project? WHY? (20 pts.) 2) Bull Gator Industries is considering a new assembly line costing $6,000,000. The assembly lihe wil be fully depreciated by the simplified straight line method over its 5 year depreciable life. Operating coshs of the new machine are expected to be $1,100,000 per year. Ihe existing assembly line has 5 years if sold today ly depreciated and has a cu the company would receive $2,400,000 for the existing machine. Annual operating costs on the existig machine a e 2 100,000 per year. Bull Gator is in the 46% marginal tax bracket and has a requ redret of return of 12%. Calculate the net present value of replacing the existin outlay CFo, the project NPV). (40 pts.) g machine. (Hint: a) First calculate the imtial ) then calculate the project's incremental Free Cash Flows, CF, to CF s c) then calculate

Explanation / Answer

a calculation of the net present value 1 years 1 2 3 4 5 2 cash flows 14000 14000 10000 10000 8000 3 PVRF at 10 % 0.9091 0.8264 0.7513 0.6830 0.6209 4 present value cash flows ( 2 * 3 ) 12727 11570 7513 6830 4967 5 total present value 43608 6 initial cash outlay 45000 7 net present value ( 5 - 6 ) -1392 the project shall not be accepted as the net present value of the project is negative

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