1. You are evaluating a new machine that has a four-year life and costs $100,000. The pretax operating costs of operating the machine are $15240 per year. Use straight-line depreciation to zero over the project's life and assume an after-tax salvage value of $13,200 at the end of four years. If your tax rate is 34 percent and your discount rate is 7 percent. What is the Equivalent Annual Cost (EAC)?
a. $23231
b. $23651
c. $35558
d. $28108
2. You are considering a 3-year project with an initial cost of $738,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $48,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories at its beginning, which will be recuperated at the end of the project. What is the NPV of the project if the required rate of return is 9 percent?
a. $-88799
b. $-42784
c. $-64336
d. $-99857
e. $-115805