MACRS Fixed Annual Expense Percentages by RecoveryClass?????????

??Year	?3-Year	?5-Year	?7-Year	?10-Year
????1	?33.33%	?20.00%	?14.29%	?10.00%
????2	?44.45%	?32.00%	?24.49%	?18.00%
????3	?14.81%	?19.20%	?17.49%	?14.40%
????4	? 7.41%	?11.52%	?12.49%	?11.52%
????5		?11.52%	?8.93%	?9.22%
????6		? 5.76%	?8.93%	?7.37%
????7			?8.93%	?6.55%
????8			?4.45%	?6.55%
????9				?6.55%
??10				?6.55%
??11				?3.28%

Project cash flow and NPV. The managers ofClassic Autos Incorporated plan to manufacture classicThunderbirds? (1957 replicas). The necessary foundry equipment willcost a total of $4,200,000 and will be depreciated usinga?five-year MACRS? life, Projected sales in annual units for thenext five years are 300 per year. If the sales price is $ 27,000per? car, variable costs are ?$18,000 per? car, and fixed costs are?$1,300,000 ?annually, what is the annual operating cash flow ifthe tax rate is 30?%? The equipment is sold for salvage for?$525,000 at the end of year five. What is the? after-tax cash flowof the? salvage? Net working capital increases by ?$550,000 at thebeginning of the project? (year 0) and is reduced back to itsoriginal level in the final year. What is the incremental cash flowof the? project? Using a discount rate of 12% for the? project,determine whether the project should be accepted or rejectedaccording to the NPV decision model.

First, what is the annual operating cash flow of the project foryear? 1? ?$________ ?(Round to the nearest? dollar.)

What is the annual operating cash flow of the project for year?2? ?$_________ ?(Round to the nearest? dollar.)

What is the annual operating cash flow of the project for year?3? ?$___________ ?(Round to the nearest? dollar.)

What is the annual operating cash flow of the project for year?4? ?$________ ?(Round to the nearest? dollar.)

What is the annual operating cash flow of the project for year?5? ?$_________?(Round to the nearest? dollar.)

?Next, what is the? after-tax cash flow of the equipment at?disposal? ?$________?(Round to the nearest? dollar.)

?So, what is the incremental cash flow of the project in year?0? $________?(Round to the nearest? dollar.)

What is the incremental cash flow of the project in year? 1??$__________?(Round to the nearest? dollar.)

What is the incremental cash flow of the project in year? 2?$_________? (Round to the nearest? dollar.)

What is the incremental cash flow of the project in year? 3??$________ (Round to the nearest? dollar.)

What is the incremental cash flow of the project in year? 4??$________ ?(Round to the nearest? dollar.)

What is the incremental cash flow of the project in year? 5??$________ ?(Round to the nearest? dollar.)

?Finally, what is the NPV of the? project? ?$________ (Round tothe nearest? dollar.)

Should the project be accepted or? rejected? (Select the best?response.)

A.The project should be accepted because the NPV is greater thanzero.

B.The project should be rejected because the NPV is less thanzero.