Fool Proof Software is considering an expansion project having life for four years. The proposed project has the following features:

Initial cost of the equipment is $200,000, with shipping cost $10,000 and installation cost of $30,000.

The equipment will depreciate over 4 years using MACRS at the following rates (33%, 45%, 15%, and 7%).

Inventories will increase by $25,000, and accounts payable will rise by $5,000

The company will sell 120,000 units per year with a price of $2/unit. The companys total operating cost will equal $120,000 each year, plus research and development costs $30,000 each year.

The project salvage valve is $25,000.

The companys tax rate is 40%.

The projects WACC is 10%.

1. What is the net cost of the equipment for capital budgeting purposes? (Hint: Calculate the initial investment outlay). *

$200,000

$210,000

$240,000

$260,000

None of the above

2. The depreciation expenses for the four years are: *

Y1=$79,200 Y2=$108,000 Y3=$36,000 Y4=$16,800

Y1=$66,000 Y2=$90,000 Y3=$30,000 Y4=$14,000

Y1=$66,000 Y2=$29,700 Y3=$4,455 Y4=$312

Y1=$85,800 Y2=117,000 Y3=$39,000 Y4=$18,200

None of the above

3. The after-tax Cash Flow for the 2nd year is: *

$ 87,444

$ 118,800

$ 108,000

$ 115,200

None of the above

4. The after-tax Cash Flow for the 3th year is: *

$87,600

$84,000

$86,400

$74,317

None of the above

5. The Terminal Value (TV) is: *

$20,000

$15,000

$25,000

$35,000

None of the above

6. The NPV value of the project is approximately: *

$ 72,047

$ 55,855

$ 42,312

$ 30,315

None of the above