Question $2(22$ marks$)$

Your company is considering a new project which requires a new machine. The price of the machine is

$$60,000,$ and an additional installation cost of $$6,000$ is required. In five years, the machine can be sold for

$$5,000.$ Assuming the tax rate is $20\%,$ the appropriate discount rate for the project is $10\%,$ and the machine

applies five$-$year MACRs for tax purpose. To start the project, it also requires $$30,000$ net working capital,

and this amount will be recovered when the project is terminated in five years.

If the project is accepted, the amount of cash sales will be increased for each year during the project life, in

which the amounts are as follows,

The following table shows the depreciation rates.

a$)$ Calculate the depreciation expense for each year from year $1$ to year $5.$

$(5$ marks$)$

$(5$ marks$)$

b$)$ Calculate the operating cash flows for each year from year $1$ to year $5.$

$(4$ marks$)$

c$)$ Calculate the net capital spending for each year from year $0$ to year $5.$

d$)$ Calculate the net present value of the project, and decide whether the company should take the project

or not.