A new asset with the 3-year tax life is to be used in 5-year project. Asset cost $200,000 and will be depreciated based on MACRS. Machine will create revenues of $100,000 a year and operating expenses, excluding depreciation, is $40,000 a year. Asset is expected to be sold for $20,000 at the end of project. Suppose 34% tax rate and 11% required rate of return.
(a) Determine the net salvage value of the asset?
(b) prepare the NET cash flows of year 1 through year 5.
(c) Determine the NPV of project? (Under MACRS, depreciation rate for asset with 3-year tax life is: 33.33%, 44.44%, 14.82%, 7.41%, in year1, year 2, year 3, and year 4 respectively).