Questions are from Chapter 2Book to be used is FINANCIAL THEORYAND CORPORATE POLICY, FOURTH EDITION, Copeland Weston Shastri1. Basic capital budgeting problem with straightline depreciation. The Roberts company has cash inflows of $140,000 per year onproject A and cash outflows of $100,000 per year. The investment outlay on theproject is $100,000. Its life is 10 years. The tax rate is 40%. The opportunitycost of capital is 12%.a. Present two alternative formulations of the netcash flows adjusted for the depreciation tax shelter. b. Calculate the net present value for project A,using straight line depreciation for tax purposes.2. Basic replacement problem. The Virginia companyis considering replacing a riveting machine with a new design that willincreases earnings before depreciation from $20,000 per year to $51,000 peryear. The new machine will cost $100,000 and has an estimated life of eightyears, with no salvage value. The applicable corporate tax rate is 40% and thefirms cost of capital is 12%. The old machine has been fully depreciated andhas no salvage value. Should it be replaced with a new machine?3. Calculate the internal rate of return for thefollowing set of cash flows:t1: 400t2: 400t3: -1,000If the opportunity cost of capital is 10%, should the project beaccepted?4. The Ambergast Corporation is considering aproject that has a three-year life and costs $1,200. It would save $360 peryear in operating costs and increase revenue by $200 per year. It would befinanced with a three-year loan with the following payment schedule (the annualrate of interest is 5%):Payment Interest Repayment ofPrincipal Balance 440.65 60.00 380.65 819.35440.65 40.97 399.68 419.67440.65 20.98 419.67 0 121.95 1,200.00Ifthe company has a 10% after tax weighted average cost of capital, has a 40% taxrate, and uses straight-line depreciation, what is the net present value of theproject?

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