Net present value of the new purification system project

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1. Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 170,000 dollars today. The equipment would be depreciated straight-line to 10,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 20,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 125,000 dollars and relevant costs are expected to be 55,000 dollars. The tax rate is 50 percent and the cost of capital for the project is 7.57 percent. What is the NPV of the project?

2. Oxygen Optimization is considering buying a new, high efficiency purification system. The new system would be purchased today for 16,600 dollars. It would be depreciated straight-line to 1,600 dollars over 2 years. In 2 years, the system would be sold and the after-tax cash flow from capital spending in year 2 would be 2,500 dollars. The system is expected to reduce costs by 5,700 dollars in year 1 and by 13,800 dollars in year 2. If the tax rate is 50 percent and the cost of capital is 10.3 percent, what is the net present value of the new purification system project?

Reference no: EM131891599

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