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1. Oxygen Optimization is considering buying a new, high efficiency purification system. The new system would be purchased today for 13,400 dollars. It would be depreciated straight-line to 1,200 dollars over 2 years. In 2 years, the system would be sold and the after-tax cash flow from capital spending in year 2 would be 2,000 dollars. The system is expected to reduce costs by 3,900 dollars in year 1 and by 12,500 dollars in year 2. If the tax rate is 50 percent and the cost of capital is 5.79 percent, what is the net present value of the new purification system project?

2. Fairfax Pizza is considering buying a new, high efficiency oven. The new oven would be purchased today for 16,000 dollars. It would be depreciated straight-line to 1,400 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 2,100 dollars. Without the new oven, costs are expected to be 11,400 dollars in 1 year and 16,900 in 2 years. With the new oven, costs are expected to be -100 dollars in 1 year and 13,400 in 2 years. If the tax rate is 50 percent and the cost of capital is 11.23 percent, what is the net present value of the new oven project?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92719881

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