1. At the start of a project, a firm assumed that a machine would be sold at the end of the project at $12 million. The firm used straight line depreciation method based on the book value of $12 million at the end of the project for the machine. However, at the end of the project, the machine is sold for $7 million instead. if the marginal tax rate is 30%, then the firm will
A) pay additional taxes of $3.60 million, since the taxes were underpaid
B) receive $2.1 million from the IRS since the taxes were overpaid
C) have $5 million in after tax proceeds from the sale of the machine
D) pay additional taxes of $2.1 million since the taxes were underpaid
E) have $8.50 million in after tax proceeds from the sale of the machine
2. A firm needs to decide between two mutually exclusive projects. Porject Alpha requires an initial investment of $29,000 today and is expected to generate cash flow of $43,000 for the next 3 years. Project Beta requires an initial investment of $60,000 and is expected to generate cash flows of $45,000 for the next 6 years. The cost of capital is 11%. The projects can be repeated with no change in cash flows. What is the NPV of the project that would be selected based on the replacement chain analysis?
A) project beta; $140,439
B) Project alpha; $132,489
C) project beta; $132,489
D) project beta; $140,928
E) project alpha; $131,709