ottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase...

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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.)

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3.6 Ratings (525 Votes)

a ANNUAL OPERATING CASH FLOWS Savings in expenses per year 180000 Less Depreciation of new washer 66006 110000 Incremental net operating income 70000 Tax at 40 28000 Incremental NOPAT 42000 Add Depreciation 110000 Annual See Answer

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