Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,000 and sell its old washer for $800. The new washer will last for 6 years and save $600 a year in expenses. The opportunity cost of capital is 9%, and the firm's tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. Note: Negative amounts should be indicated by a minus sign. b. What is project NPV? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Annual operating cash flow in year 0 a. Annual operating cash flow in years 1 to 6 b. NPV c. NPV 579
Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,000 and sell its old washer for $800. The new washer will last for 6 years and save $600 a year in expenses. The opportunity cost of capital is 9%, and the firm's tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. Note: Negative amounts should be indicated by a minus sign. b. What is project NPV? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Annual operating cash flow in year 0 a. Annual operating cash flow in years 1 to 6 b. NPV c. NPV 579
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It
can purchase the washer for $3,000 and sell its old washer for $800. The new
washer will last for 6 years and save $600 a year in expenses. The opportunity cost
of capital is 9%, and the firm's tax rate is 21%.
a. If the firm uses straight-line depreciation over a 6-year life, what are the cash
flows of the project in years 0 to 6? The new washer will have zero salvage
value after 6 years, and the old washer is fully depreciated.
Note: Negative amounts should be indicated by a minus sign.
b. What is project NPV?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
c. What is NPV if the firm investment is entitled to immediate 100% bonus
depreciation?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
a. Annual operating cash flow in year 0
a. Annual operating cash flow in years 1 to 6
b. NPV
c. NPV
579
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