Question

Asked Nov 8, 2019

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,200 and sell its old washer for $2,500. The new washer will last for 6 years and save $1,700 a year in expenses. The opportunity cost of capital is 15%, and the firm’s tax rate is 21%.

**a. **If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. **(Negative amounts should be indicated by a minus sign.)**

**b.** What is project NPV? **(Do not round intermediate calculations. Round your answer to 2 decimal places.)**

**c.** What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? **(Do not round intermediate calculations. Round your answer to 2 decimal places.)**

Step 1

a.

Calculate the cash flows from year 0 to 6 as follows:

Step 2

b.

Calculate the net present val...

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