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The Company is evaluating an asset that may increase sales by$120,000 every year for 4 years. There is no expected change in netoperating working capital. The company's cost of capital is 6.5%.The proposed asset costs $400,000, will require $20,000 to modifyfor operations, and falls in the 3-year class MACRS fordepreciation rates: .33, .45, .15, and .07 for years 1 through 4,respectively. At the end of the 4 years, it is expected that theasset may sell for $5,000. The company's tax rate is 21%.SHOW ALL WORK.
a) What is the initial outlay for this project?
b) What are the operating cash flows in Years 1 through 4?
c) As part of the terminal cash flow in Year 4, what is theafter-tax salvage value of the asset?
d) What is the net present value of this proposed assetinvestment? Should it be accepted or rejected? SHOW ALLWORK ON THE TI BAII Plus Calculator.
