A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus…

1. A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period. (see table below for the applicable depreciation percentages) Additional sales revenue from the renewal should amount to $1.2 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 40% of the additional sales. The firm is subject to a tax rate of 40%. (Note: answer the following questions for each of the next 6 years.)

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