Question

#30 Oxygen Optimization is considering buying a new purification system. The new system would be purchased today for 17,800 dollars. It would be depreciated straight-line to 1,200 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 1,900 dollars. The system is expected to reduce costs by 6,800 dollars in year 1 and by 14,200 dollars in year 2. If the tax rate is 50 percent and the cost of capital is 6.39 percent, what is the net present value of the new purification system project?

#31 Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 18,400 dollars. It would be depreciated straight-line to 1,400 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 2,800 dollars. Without the new oven, costs are expected to be 13,600 dollars in 1 year and 18,100 in 2 years. With the new oven, costs are expected to be 1,700 dollars in 1 year and 14,300 in 2 years. If the tax rate is 50 percent and the cost of capital is 9.78 percent, what is the net present value of the new oven project?

Please help

Answer 1

30. Depreciation = (17,800 - 1,200) / 2

31. Depreciation = (18,400 - 1,400) / 2

Reduction in cost - Year 1 = 13,600 - 1,700

- Year 2 = 18,100 - 14,300