Problem 1: JB enterprises purchased a new molding machine for $75,000. The company paid $6,000 for the shipping and another $4,000 to get the machine integrated with the existing assets.The company purchased a supply of oil for $2,000. The machine was to be depreciated on a straight line basis over its expected useful life of 10 years. JB is replacing an old machine that was purchased 7 years ago for $50,000. The old machine was being depreciated on a a straight line basis over a 10 year expected life. The machine was sold for $10,000. JB's marginal tax rate is 40%. What is the amount of the initial outlay?
Problem 2: Which of the following statements concerning the change in working capital is most accurate?
A). The $2,000 paid for oil is added to the initial outlay, offset by the tax savings of $800
B) The $2,000 may be expensed each year over the life of the project as part of the incremental free cash flows
C) The $2,000 is added to the initial outlay and recaptured during the terminal year, hence having no impact on the projects NPV or IRR
D) Even if the $2,000 is fully recovered at the end of the project, the projects NPV and IRR will be lower if the change in working capital is included in the analysis.