ottoms Up Diaper Service is considering the purchase of a newindustrial washer. It can purchase the washer for $6,600 and sellits old washer for $2,300. The new washer will last for 6 years andsave $1,800 a year in expenses. The opportunity cost of capital is19%, and the firm’s tax rate is 40%.
a. If the firm uses straight-line depreciation to an assumedsalvage value of zero over a 6-year life, what is the annualoperating cash flow of the project in years 0 to 6? The new washerwill in fact have zero salvage value after 6 years, and the oldwasher is fully depreciated. (Negative amount should be indicatedby a minus sign.)
b. What is project NPV? (Negative amount should be indicated bya minus sign. Do not round intermediate calculations. Round youranswer to 2 decimal places.)
c. What is NPV if the firm uses MACRS depreciation with a 5-yeartax life? Use the MACRS depreciation schedule. (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)
