Sound Inc. is developing a 3^rd generation network music player. You have been asked to complete the capital budget for this project. So far, you have compiled the following information:

The project will last for four years.

The initial investment in equipment is $12 million.

The salvage value of the equipment will be $4 million.

The equipment will be depreciated to $2 million over the next four years using straight-line depreciation.

The project needs an initial investment in net working capital of $0.5 million.

The corporate tax rate is 30%.

The cost of capital is 10%.

Assume that the firms other projects yield a positive income before tax.

Additionally, you receive the following project-related information from the accounting and marketing departments (in $ million):

Year	0 (now)	1	2	3	4
Net working capital	0.5	0.8	1.2	0.8	0
Sales		6	8	10	9
Cost of goods sold		3	4	5	4
Depreciation		2.5	2.5	2.5	2.5

Whats the after-tax salvage value in year 4 (in $ million)?

$3.4 million

$2 million

$1.4 million

$4 million

How big is the present value of the total depreciation tax shield?

$10 million

$5.92 million

$7.92 million

$2.38 million