Please answer both or none! Thank you ahead of time. a. You are considering an i
ID: 2797942 • Letter: P
Question
Please answer both or none! Thank you ahead of time.
a. You are considering an investment in a machine that will cut your company's costs significantly. The cash flows are as follows: Investment amount: $80,000. Cash flows: Year 1--$30,000 Year 2--$35,000 Year 3--$50,000. Given a cost of capital of 15%, calculate the NPV of the project.
b. You invest in a project that has a depreciable asset. The asset is depreciable under the 5year MACRS category. The depreciation percentages for all six years are: 0.20, 0.32, 0.192, 0.115, 0.115, 0.058. On an asset worth $150,000, how much depreciation do you get to claim in year 3?
Explanation / Answer
Answer to A
Answer to B
Year 3 Rate of Depreciation = 0.192
Year 3 Depreciation = Cost x Rate of Depreciation year 3
= 150000 x 0.192
= $28800
Year Cash Flow PVF at 15% Present Value 0 (80,000.00) 1.0000 (80,000.00) 1 30,000.00 0.8696 26,086.96 2 35,000.00 0.7561 26,465.03 3 50,000.00 0.6575 32,875.81 NPV 5,427.80