A.)

Machine Purchase: 85,000

Machine life span: 4 years

Salvage value: 20,000 at year 4

machine operating cost: 45,000 per year

Machine Book Value: depreciation method Straight-line.

Relevant Discount Rate 8%

Tax Rate: 21%

Operating cash flow at year 1: (31,087.50)

Calculate: NPV of the 4 year project

Calculate: EAC

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B.)

Nominal Cash Flow

Year 0 = $-5,000

Year 1 = $2,250

Year 2 = $1,750

Year 3 = $2,500

Real Rate: 3%

Inflation Rate : 3%

Calculate: NPV

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C.

(A) Machine Purchase: $4,500,000

Life Span of machine: 5 years

Salvage Value: 0

Straight line depreciated method

Fixed Cost: $750,000 per year

Variable Cost: 15%

(B) Machine Purchase: $6,000,000

Life Span of machine: 7 years

Salvage Value: 0

Straight line depreciated method

Fixed Cost: $1,000,000 per year

Variable Cost: 20%

Both Machines Sales: $3,000,000

Required Rate of Return: 7%

Tax Rate: 21%

Calculate: Net Present Value

Equivalent Annual Annuity