Use the information provided on Caterpillar Inc. to answer the following four parts:
Caterpillar Inc. (CAT) is considering purchasing a new soil compactor for $300,000, and it would cost another $20,000 to modify it for special use by the firm. The company expended $40,000 traveling to various dealers in search of the new machine. The selected equipment falls into the MACRS 3-year class (33%, 45%, 15%, 7%), and could be sold after 3 years for $30,000. The equipment is expected to increase before-tax revenues by $200,000 per year, but annual costs will amount to $50,000. The firm's marginal federal-plus-state tax rate is 40% and its WACC is 10%.
a) What is the initial cash outflow for the expansion project?
-$300,000
-$340,000
-$320,000
-$360,000
None of the above
b) What is the depreciation outlay in the fourth year?
$22,400
$105,600
$0
$48,000
None of the above
c) What is the total cash inflow in year three?
$109,200
$136,160
$132,240
$147,600
None of the above
d) What is the net present value (NPV) for the expansion project and should the company accept or reject?
$24,500.68, Accept
$4,245.23, Accept
$24,500.68, Reject
$4,245.23, Reject
None of the above