QUESTION 17 A company is considering a 6-year project that requires an initial o
ID: 2769811 • Letter: Q
Question
QUESTION 17
A company is considering a 6-year project that requires an initial outlay of $25,000. The project engineer has estimated that the operating cash flows will be $5,000 in year 1, $5,000 in year 2, $7,000 in year 3, $7,000 in year 4, $7,000 in year 5, and $9,000 in year 6. At the end of the project, the equipment will be fully depreciated, classified as 5-year property under MACRS. The project engineer believes the equipment can be sold for $4,000 at the end of the project. If the tax rate is 29% and the required rate of return is 16%, what is the net present value (NPV) of this project? (Answer to the nearest dollar.)
QUESTION 18
A company is considering a 3-year project that requires an initial installed equipment cost of $17,000. The project engineer has estimated that the operating cash flows will be $3,000 in year 1, $6,000 in year 2, and $9,000 in year 3. The new machine will also require a parts inventory of $2,000 at the beginning of the project (assume this inventory can be sold for cost at the end of the project). It is also estimated that the equipment can be sold as salvage for an after tax salvage cash flow of $5,000 at the end of the project. If the tax rate is 25% and the required rate of return is 15%, what is the net present value (NPV) of this project? (Answer to the nearest dollar.)
Explanation / Answer
Answer:17
Discount rate 16% Year 0 1 2 3 4 5 6 Intial outlay -25000 OCF 5000 5000 7000 7000 7000 9000 Sale value after tax 2840 Total cash flow ($) -25000 5000 5000 7000 7000 7000 11840 NPV -431