Your firm is considering a new product development. An outlay of $110,000 is required for equipment, and additional net working capital of $5,000 is required. Implementing the project will generate a time zero investment tax credit benefit of $3,000 for the firm (i.e. at the beginning of the project). The project is expected to have a 4 year life, and the equipment will be depreciated on a straight line basis to a $10,000 book value. Producing the new product will reduce current manufacturing expenses by $20,000 annually and increase earnings (revenue) before depreciation and taxes by $23,000 annually. Stanton's marginal tax rate is 40%. Stanton expects the equipment will have a market salvage value of $15,000 at the end of 4 years.

1. What is the total cost at time zero of accepting this project?

2. What is the depreciation each year over the machine's 4 year life?

3. What is the project's after-tax operating cash flow during years 1 - 4 from the machine?: (Hint: this is an annuity, therefore only one answer is necessary. Also ignore non-operating cash flows for this part)

4. Compute the after tax salvage value of the equipment at the end of 4 years.

5. Compute the total cash flows associated with the analysis of this project and clearly indicate them on a timeline.

6. If the cost of capital for a project at this risk is 9%, what is the project's NPV? Should it be accepted? Accepted or reject the project? Why?

7. What is the project's IRR? Accept or reject? Why?

8. What is the project's PI? Accept or reject? Why?