1.) What is the depreciation expense in Year 1 (in $s) and aftertax OCF in year 1?

2.) What is the depreciation expense in Year 2 (in $s) and aftertax OCF in year 2?

3.) What is the depreciation expense in Year 3 (in $s) and aftertax OCF in year 3?

4.) What is the after tax salvage value of the equipment at the endof year 3

5.)What is the terminal cash flow (the last cash flow of theproject not including the OCF)?

6.) What is the initial investment in this project (enter as anegative number)?

7.) What is the projects NPV?

Frito Lay is considering a new line of potato chips. This will be athree year project.

a. Frito Lay paid $1,000,000 last year to a winning person whothought of the new line of potato chips.

b. New equipment will cost $6,000,000 and depreciation is by the3-year MACRS method. Purchase of the equipment will require anincrease in net working capital of $600,000 at time 0 (which willbe recaptured at the end of the project).

c. The new potato chips will generate an additional $5,000,000 inrevenues in the first year, $4,000,000 in revenues in in the secondyear, and $2,000,000 in revenues the third (final) yearrevenues.

d. In addition to the additional revenues outlined in c. The newpotato chips will decrease existing chip line revenues by$2,000,000 the first year, $1,000,000 the second year, and $500,000the third year.

e. The new project is estimated to have expenses of $150,000 eachyear.

f. At the conclusion of the project, the equipment can be sold for$1,000,000.

g. The firm’s marginal tax rate is 20 percent, and the project’scost of capital is 10 percent.

The following is the MACRS Depreciation Table:

Year	3-year	5-year	7-year
1	33.33%	20.00%	14.29%
2	44.44%	32.00%	24.49%
3	14.82%	19.20%	17.49%
4	7.41%	11.52%	12.49%
5		11.52%	8.93%
6		5.76%	8.93%
7			8.93%
8			4.45%