Problem: Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,000 and sell its old washer for $2,000. the new washer will last for 6 years and save $1,500 a year in expense. The opportunity cost of capital is 15 percent, and the firm's tax rate is 40 percent.
1) If the firm uses straight-line depreciation to an assumed salvage value of zero over a 6-year life, what are the cash flows of the project in years 0-6? the new washer will in fact have zero salvage value after 6 years, and the old washer is fully depreciated.
2) What is project NPV?
3) What will NPV be if the firm uses MACRS depreciation with a 5-year tax life?