Question

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,200 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,700 a year in expenses. The opportunity cost of capital is 14%, and the firm’s tax rate is 40%.

b. What is project NPV?

c. What is NPV if the firm uses MACRS depreciation with a 5-year tax life? Use the MACRS depreciation schedule.

Answer 1

Assuming that loss incurred in one year can be adjusted in the coming years and solution is given accordingly in case of macr depreciation.

It can also be assumed that tax shield can be received same year in cash and do the solution accordingly.