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Fracking, Inc. is considering a replacement project. The required return is 10% and the tax rateis 30%. If the firm purchases the new equipment, net working capital will have to be increasedby $100,000 immediately.
New Equipment Old EquipmentCurrent book value $400,000Acquisition Cost $800,000 Current market value $500,000Life 5 years Remaining life 5 yearsAnnual sales $400,000 Annual sales $400,000Cash oper. Expenses $150,000 Cash Oper. Expenses $260,000Annual Depreciation $160,000 Annual Depreciation $80,000Acctg. Salvage Value $0 Acctg. Salvage Value $0Expected Salvage Val. $200,000 Expected Salvage Val. $0
9. The net initial outlay for the proposed Fracking project would be closest toA.$430,000B.$500,000C.$530,000D.$560,00010. The net change in after-tax operating cash flow for year 1 for the proposed Fracking projectwould be closest toA.$88,000B.$93,000C.$98,000D.$101,00011. The terminal year after-tax TOTAL cash flow for the proposed Fracking project would beclosest toA.$325,000B.$341,000C.$372,000D.$394,00012. Based on the information provided, Fracking should
A.Reject the project because the NPV is negative
B.Accept the project because the NPV is between $0 and $5,000C.Accept the project because the NPV is between $5,001 and $15,000D.Accept the project because the NPV is greater than $15,000

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