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Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase...

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,600 and sell its old washer for $2,300. The new washer will last for 6 years and save $1,800 a year in expenses. The opportunity cost of capital is 19%, and the firm’s tax rate is 21%.

a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.)

b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Solutions

Expert Solution

A. Cash Inflow = $1653 (Year 1 to 6)

Cash Outflow = -$4783 (Year 0)

B. NPV = $ 853.36

C. NPV (considering immediate 100% depreciation) = $1451.70

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jeff jeffy answered 2 years ago
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