The Boring Corporation is considering a 3-year project with an initial cost of $1,020,000. The project will not directly produce any sales but will reduce operating costs by $640,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $156,000. The tax rate is 34 percent. The project will require $28,000 in extra inventory for spare parts and accessories. Should this project be implemented if The Boring Corporation requires a rate of return of 16 percent? Why or why not?

Paperless Exams Distributor is considering a four-year project to improve its exam production efficiency. Buying a new exam question generator would cost $385,000. It is expected to result in $145,000 in cost savings, per year, before taxes. This piece of equipment would follow the MACRS five-year class depreciation method. Its salvage value at the end of the project is estimated at $45,000. The exam question generator also requires an immediate investment in spare parts inventory of $20,000. It will require additional $3,100 in inventory in each succeeding year of the project. The company's tax rate is 22 percent. The appropriate discount rate is 9 percent. Refer to Table 10.7.

Fun With Finance is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.836 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $142,800. The project requires an initial investment in net working capital of $204,000. The project is estimated to generate $1,632,000 in annual sales, with costs of $652,800. The tax rate is 32 percent and the required return on the project is 9 percent.

Halloween Costumes Unlimited is considering a new 3-year store expansion project that requires an initial fixed asset investment of $3.0 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $231,000 after 3 years. The project requires an initial investment in net working capital of $330,000. The project is estimated to generate $2,640,000 in annual sales, with costs of $1,056,000. The tax rate is 33 percent and the required return on the project is 11 percent. (Do not round your intermediate calculations.)

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $575,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $295,000. The old machine is being depreciated by $115,000 per year, using the straight-line method.

The new machine has a purchase price of $1,100,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $130,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $240,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

1. What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $
   
2. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.

   Year	Depreciation Allowance, New	Depreciation Allowance, Old	Change in Depreciation
   1	$	$	$
   2
   3
   4
   5

3. What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.

   Year 1	Year 2	Year 3	Year 4	Year 5
   $	$	$	$	$

4. Should the firm purchase the new machine?
   -Select-YesNoItem 22
   
   Support your answer. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
   
5. In general, how would each of the following factors affect the investment decision, and how should each be treated?
   1. The expected life of the existing machine decreases.

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.

   2. The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year.

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.