1.For a new project, Indigo Ink Inc. had lanned on depreciating new machinery that costs $300 million on a 4-year, straight line basis. Suppose now, that Armstead decides to depreciate the new machinery on an accelerated basis according to the following depreciation schedule:
year 1: 20% year 2: 32% year 3:19% year 4:12% year 5:11% year 6:6%
The project for which the machinery has been purchased ends in four years, and as a resulf the machinery is going to be sold at its salvage value of $60000000. Under this accelerated depreciation method, what is the after-tax cash flow expected to be generated by the sale of the equipment in year4? Assume the firm's tax rate is 40percent.
A)56400000
B)36000000
C)72200000
D)51600000
E)63600000
2.Wooldridge furniture is replacing its old machine with a more efficient one. The old machine is being depreciated on a straight line basis ata rate of $10000 per year. The old machine has a current book value of $100000 and a 10-year remaining useful and depreciation life. The new machine, which costs $910000, will be depreciated for 10years using simplified straight line depreciation to zero. Introducing the more efficient macine is exxpected to increase revenues by $50000 per year and reduce annual operating costs by $80000. Compute the year 2 cash flow for this project. Assume Wooldridge has a marginal tax rate of 40%.
A)110400
B)49520
C)34520
D)122250
3. Sandbox Inc. is considering opening a new plant that would allow them to manufacture playground equipment out of household refuse. To develop the manufacturing technology, Sandbox Inc. has incurred $8million in R&D costs -5million has come from the company's internal funds and $3millino has been covered by the EPA's "Garbage for the Future" grant program. The project is expected to generate operating cash flows of $10, 15, 25, and 20 million in years 1 through 4. In addition to the initial outlay of $40million required to build the plant(it will be fully depreciated and worthless by the end of the fourth year), Sandbox Inc. will beed to increase its stock of NWC by $5million at the beginning of the project and then by another $5million at the end of year2. Assuming a discount rate of 10%, the NPV of the project is:
A) 6.62million
B) 11.63million
C) 11.48million
D) 8.21million E)10.76 million.