6. (15 points) At time zero (t = 0), a project requires a $90,000 initial investment in equipment and a $10,000 initial investment in working capital. You anticipate that the project will generate revenues of 120,000 per year for three years. You predict that manufacturing expenses will account for 60% of revenues. Assume that all income and expenses (i.e., t = 1, t = 2, and t = 3) occur at year's end. Over the three-year period, the equipment depreciates utilizing straight-line depreciation. The company can sell the equipment for \10,000 at the end of the project and recover its investment in net working capital. The cost of capital is 15%, and the corporation tax rate is 21%. Calculate the project's NPV.

4. (10%) For her estate in Connecticut, Marsha Jones purchased a used Mercedes horse transporter. The price was $35,000.00. The goal is to reduce the cost of renting a horse transporter. For $200 per day plus $1 per mile, Marsha had been hiring a transporter every other week. The majority of the journeys are between 80 and 100 miles long. Joe Laminitis, the driver, often receives a $40 gratuity from Marsha. She will just need to pay for maintenance and diesel fuel with the new transporter, which costs around $0.45 per mile. The annual insurance premium for Marsha's transporter is $1,200. When Marsha's horse Spike is ready to retire in eight years, the transporter will most likely be worth $15,000 (in real terms). Is the transporter a positive-NPV investment? Assume a nominal discount rate of 9% and a 3% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business or financial investment, so taxes can be ignored.

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