1.Assume a tax rate of 35%. You are considering a new machine that will increase gross income by $120,000/year for 5 years. The machine costs $250K, and will be straight-line depreciated over 5 years (so $50K/y depreciation charge). What are the after tax cash flows (increase to income, and depreciation tax break) for Y1-Y5? (Answer: +78K, +17.5K, total of 95.5K)

2.What’s the NPV of the cash flows, at an 8% discount rate?

3.Assume a tax rate of 20% and re-do #1 & 2.

4.Assume a 35% tax rate, and assume the machine is depreciated over 2 years (straight-line, so $125K/y). What are the after-tax CF’s for 5y, and what’s the NPV at an 8% discount rate?

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