Reference no: EM132726385

Problem 1: Project Beta is a project which will last for 4 years and which requires an initial outlay of $4,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $4000 per year. The value of incremental, after-tax earnings is $1332 per year. The project will require Net Working Capital equal to 20% of incremental revenue. What is the value of incremental free cash flow in Year 0?

Select one:

a. $-4800
b. $4800
c. $-3200
d. $3200

Problem 2: Equipment with a book value of $5,000 will be sold at the end of a project for a salvage value of $10,000. The tax rate is 25%. What is the tax effect resulting from the profit or loss from the sale of the equipment (where a negative number means tax is payable and a positive number means that there is a tax shield)?

Select one:

a. $1250
b. $-1250
c. $-2500
d. $2500