Problems: 1. Jonhson Products is considering purchasing a new milling machine that costs $100,000. The machines installation and shipping costs will total $2,500. If accepted, the milling machine project will require an initial net working capital investment of $20,000. Johnson plans to depreciate the machine on a straight-line basis over a period of 8 years about a year ago, Jonhson paid $10,000 to a consulting firm to conduct a feasibility study of the new milling machine. Jonhsons marginal tax rate is 40 percent.

a. Calculate the projects net investment (NINV)

b. Calculate the annual straight-line depreciation for the project.

2. A new machine costing $100,000 is expected to save the MchKaig Brick Company $15,000 per year for 12 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 12-year period to an estimated salvage value of $0. The firms marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Also compute the net investment (NIN) for this project.