1) What is the operating cash flow (OCF) for year 1 of project A that Middlefield Motors should use in its NPV analysis of the project? The tax rate is 15 percent. During year 1, the project A is expected to have relevant revenue of 77,000 dollars, relevant variable costs of 21,000 dollars, and relevant depreciation of 14,000 dollars. In addition, Middlefield Motors would have one source of fixed costs associated with the project A. Yesterday, Middlefield Motors signed a deal with Creative Advertising to develop a marketing campaign. The terms of the deal require Middlefield Motors to pay Creative Advertising either 27,000 dollars in 1 year if project A is pursued or 19,000 dollars in 1 year if project A is not pursued.

2) Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 430,000 dollars that would be depreciated to 50,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 63,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 430,000 dollars. The firm would receive 430,000 dollars from the bank today and would pay the bank $0 in 1 year and 481,600 dollars in 2 years (consisting of an interest payment of 51,600 dollars and a principal payment of 430,000 dollars). Relevant annual revenues are expected to be 303,000 dollars in year 1 and 403,000 dollars in year 2. Relevant annual costs are expected to be 137,000 dollars in year 1 and 133,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 7.35 percent and the interest rate on the loan would be 3.46 percent. What is the net present value of the project?