Problem
Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $9,300 and sell its old washer for $2,000. The new washer will last for 6 years and save $2,200 a year in expenses. The opportunity cost of capital is 12%, and the firm's tax rate is 21%.
A. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated.
B. What is project NPV?
C. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation?