Reference no: EM133455564

Question 1.

The Cookie Express is considering a new project which will require an initial investment in fixed assets of $48,000. The net working capital requirement is $8,000 initially plus an additional $2,000 in year 2. All net working capital will be recouped at the end of the project. The project has a 4-year life and generates cost savings of $65,000 per year. The tax rate is 34 percent and the discount rate is 14 percent. The fixed assets will be depreciated using 7-year property MACRS and will be sold for $19,000 at the end of year 4. The MACRS depreciation factors are .143, .245, .175, .125, .089, .089, .089, .045 over 8 years, respectively. What is the NPV of this project?

Question 2.

The managers of Auto Interiors plan to manufacture custom exhausts for classic cars from the 1960s. The necessary machining equipment will cost a total of $393,000 and will be depreciated using 7-year MACRS. The MACRS depreciation factors are .143, .245, .175, .125, .089, .089, .089, .045, over 8 years, respectively. The firm expects to be able to sell the equipment for $225,000 at the end of 5 years. Sales are estimated at 250, 320, 450, 500, and 500 units over the next 5 years, respectively. The selling price is $475 per unit and the cost estimate is $210 per unit. Assume a 34 percent tax rate and a 14 percent discount rate. The firm plans to close at the end of year 5. What is the net present value of this project?