An investment proposal has the following probability distribution of returns:

Year 1 | Year 2 | Year 3 | |||

Return | Probability | Return | Probability | Return | Probability |

6,000 | 0.2 | 8,000 | 0.5 | 7,000 | 0.3 |

8,000 | 0.4 | 12,000 | 0.5 | 11,000 | 0.5 |

9,000 | 0.4 | 17,000 | 0.2 |

The events of each year are independent of other years. The outlay on the project is fixed at $22,000 and the appropriate discount rate figure is 10 percent.

Find the expected net present value.

Bozo Brothers purchased a machine that will be depreciated on the straight-line basis over an estimated useful life of 7 years with no salvage value. The machine is expected to generate cash flow, net of taxes, of $80,000 in each of the next 7 years. Bozo’s expected rate of return is 12%. Information on present value factors is as follows.

Present value of $1 at 12% for seven periods 0.452.

Present value of an ordinary annuity of $1 at 125 for seven periods 4.564

Assuming a positive net present value of $12,720, what was the original cost of the machine?

A. $240,400

B. $253,120

C. $352,400

D. $377,840

If Julius has a 15% tax rate and a 9% after-tax rate of return, $44,500 of income in three years will cost him how much tax in today’s dollars?

a. $5,153.

b. None of the choices are correct.

c. $34,354.

d. $6,675.

e. $44,500.