Reference no: EM131891592

1. Fairfax Pizza is evaluating a 1-year project that would involve an initial investment in equipment of 23,900 dollars and an expected cash flow of 27,300 dollars in 1 year. The project has a cost of capital of 12.28 percent and an internal rate of return of 14.23 percent. If Fairfax Pizza were to use 23,900 dollars in cash from its bank account to purchase the equipment, the net present value of the project would be 415 dollars. However, Fairfax Pizza has no cash in its bank account, so using money from its account is not possible. Therefore, the firm would need to borrow money to raise the 23,900 dollars. If Fairfax Pizza were to borrow money to raise the 23,900 dollars, the interest rate on the loan would be 2.06 percent. Fairfax Pizza would receive 23,900 dollars from the bank at the start of the project and would pay 24,392 dollars to the bank in 1 year. What is the NPV of the project?

2. Gomi Waste Disposal is evaluating a project that would require the purchase of a piece of equipment for 148,000 dollars today. During year 1, the project is expected to have relevant revenue of 114,000 dollars, relevant costs of 34,000 dollars, and relevant depreciation of 24,000 dollars. Gomi Waste Disposal would need to borrow 148,000 dollars today to pay for the equipment and would need to make an interest payment of 5,000 dollars to the bank in 1 year. Relevant net income for the project in year 1 is expected to be 49,762 dollars. What is the tax rate expected to be in year 1? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.