CCA, Depreciation, and Project Value. Bottoms up Diaper Service is considering the purchase of a new industrial washer, It can purchase the washer for $6,000 and sell its old washer for $2,000. The new washer will last for 6 years and save $1,500 a year in expenses. If the old washer is retained it will also last for 6 more years after which it will have to be junked. The washers fall into an asset class with a CCA rate of 30 percent. Bottoms Up owns other wash ing machines that also fall into this asset class. The opportunity cost of capital is 15 percent. and the firms tax rate is 40 percent.
a. If the salvage value of the washer is expected to bezero at the end of its six year life, what are the cash flows of the project in years 0 to 6?
b. What is the project NPV”!
e. What will the NPV and IRR be if the firm uses straight-line depreciation with a 6-year tax life?
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