Use the information to answer the questions: ABC Mining is reviewing the purchase of a new machine.Their capital structure consists of:$5million in loans at a stated rate of5%,$5million in bonds that sold at par for$1000 (flotationcosts were $26 per bond, coupon rate 4.5%, 10 years to maturity) $10 million in common stock with the most recent dividend of $1.20, growth rate of 5%, current stock price of $35. 40% tax rate.

Q1: ABC is looking at purchasing a new machine. The new machine installed cost is $60,000 and requires minimal increase in NWC (net working capital). It will be sold at the end of year 3 for an anticipated $5,000. Use MACRS 3 yr. (Remember to add the terminal cash flow in when calculating year 3 OCF)

Anticipated cash savings prior to depreciation:Year 1$20,000, Year 2 $30,000, Year 3 $20,000

Calculate the operating cash flows for each year.

Q2:

Continuing with ABC Mining's possible machine purchase. Note: use your cash flows obtained from previous questions.

a. What is the NPV for the project if the cost of capital for this project only is estimated to be 7%?

b. What is the project IRR?

Q3:

Continuing with ABC Mining's analysis of machine purchase. Using previous information and answers..

a. What is the project payback?

b. What is the project discounted payback?

c. Just using the data obtained so far, should they go forward with the project? yes or no