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You have been asked by the president of your company to evaluate the proposed acquisition of a new project for the firm. The equipment needed for this expansion project would cost $135,000. This equipment has a 5-year life and would be depreciated using straight-line depreciation to zero by the end of year 5. It will be sold for $40,000 at the end of year 5. The use of the new equipment would require an increase in net working capital of $5,000. There would be an increase in sales of $62,000 per year and the new project would require an annual cash operating expense of $30,000. At the end of year 5, the firm will recover the net working capital of $5,000. The firm's marginal tax rate is 30%. What is the initial cash outflow (investment outlay) of the project in year 0? 1) $3,000 2) $40,000 3) $62,000 4) $138,000 5) $140,000 What is the operating income before taxes in each year from year 1 to year 5? 1) $4,000 2) $5,000 3) $30,000 4) $40,000 5) $62,000 12.3 points) What is the after-tax operating cash flow in each year from year 1 to year 5? 1) $3,000 2) $30,000 3) $30,500 4) $50,000 5) $62,000 12.5 points) What is the total after-tax cash flow in year 5? W 1) $57,000 2) $62,000 3) $63,500 4) $102,000 5) $135,000 What is the net present value (NPV) for the project if the cost of capital is 8%? Would you accept the project under the NPV rule? 1) Accept the project since the NPV is $4,237 O2) Accept the project since the NPV is $4,536 3) Accept the project since the NPV is $10,536 4) Reject the project since the NPV is $4,536 5) Reject the project since the NPV is $10,536 What is the modified internal rate of return (MIRR) for the project if the cost of capital is 8%? Would you accept the project under the MIRR rule? 1) Accept the project since the MIRR is 14.04% 2) Accept the project since the MIRR is 12.94% 3) Accept the project since the MIRR is 8.65% 4) Reject the project since the MIRR is 14.04% 5) Reject the project since the MIRR is 12.94%

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