1) Assume the following for a piece of equipment: Purchase price $20,000; installation costs of $2,500; 4-year useful life with an estimated salvage value of $4,500; tax rate 40%; and straight-line depreciation. What would be the cash flow from salvage if the asset sold after 2 years for (a) $8,000 and (b) $15,000?
2) Assume the following: Year Zero: Capital Investment = $13.5M and Increase in NWC = $.5M; Years 1-4: OCF = $4M; Year 4: Recovery of Earlier Increase in NWC plus Cash Flow from Salvage of $2.5M. What are the incremental cash flows for this project for years zero through 4?