1. Use the table below to answer this question.
MACRS 5-year property
Sun Lee's Furniture just purchased some fixed assets classified as 5-year property for MACRS. The assets cost $56,000. What is the amount of the depreciation expense for the second year?
2. A project is expected to create operating cash flows of $30,500 a year for three years. The initial cost of the fixed assets is $63,000. These assets will be worthless at the end of the project. An additional $2,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 14 percent?
3. Thornley Machines is considering a 3-year project with an initial cost of $960,000. The project will not directly produce any sales but will reduce operating costs by $500,000 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 $143,000. The tax rate is 34 percent. The project will require $26,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley's requires a rate of return of 14 percent? Why or why not?
no; The NPV is $139,985.20
yes; The NPV is $22,572.46
yes; The NPV is $230,957.13
yes; The NPV is $113,985.20
yes; The NPV is $154,980.00
4. Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $670,000. The lot was recently appraised at $697,000. At the time of the purchase, the company spent $33,000 to grade the lot and another $4,100 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1,200,000. What amount should be used as the initial cash flow for this building project?
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