1) You are considering two machines. A and B that can be used for the same purpose. Machine A costs 250,000, will reduce costs by 75,000 per year needs working capital of 20,000 at time zero which will be release at the end of the project has a 5 year straight line depreciable life and can be sold at the end of the projects life for 50,000. Machine B costs 320,000 will reduce costs by 70,000 per year, has net working capital of 40,000 at time zero will be released at the end of its life, has a ten year straight line depreciable life and can be sold at the end for 60,000. Assume that the tax rate is 34% and the discount rate is 10%.
A) What are the after tax salvage value for project A and B at the end of their lives? Don’t include annual operating cash flows in the calculation, just the salvage value plus or minus any tax benefit or liability.
50,000 for A and 60,000 for B
33,000 for A and 39,600 for B
17,000 for A and 20,400 for B
23,000 for A and 43,100 for B
B) What are the net present values for these two projects?
2,486.55 for A and 21,421.13 for B
7,045.82 for A and 39,542.1 for B
3,704.49 for A and 24,333.2 for B