What is the depreciable cost basis

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EL Company plans to acquire equipment, with a 3-year MACRS life, at a cost of $65,000 and an extra $7,500 for delivery and installation included. EI Company expects that the new equipment will help boost its revenue by $40,000 annually for next 4 years and the operating cost is expected to increase by $15,000 each year. At the end of year 4, Anderson expects to sell the equipment for $15,000 (salvage value). The applicable depreciation rates are 33%, 45%, 15%, and 7% . The net working capital would increase by $12,000 initially, but would be recovered at the end of the project's 4-year life. EL Company's marginal tax rate is 35% and WACC is 11.5%.

A. What is the depreciable cost basis?
B. Find the total cash outflow for the project.
C. What are the operating cash flows for year 1 through 4?
D. What is the book value of the machine at the end of the project?
E. What is terminal value of the project?
F. Find the free cash flows of the project
G. Find NPV.
H. Find IRR.
I. Should you take the project? Why or why not? Explain fully.

Reference no: EM13263962

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