Marceline Enterprises is considering an expansion to its amusement park. The cost of this expansion is pegged at $1 million but will require additional capital expenditures of $200,000 every three years. In nine years it is expected that the expansion, which will be separated from the existing amusement park, can be sold for $150,000.
Amusement parks belong to CCA Class 37, with a CCA rate of 15 percent.
Along with the capital investment, Marceline expects to increase its working capital requirements by 5 percent of any capital investment during the period of this investment. Operating cash flows for the entire operation are expected to increase by $250,000 in each of the first two years, by $325,000 in each of the following three years, and by $375,000 for the final four years. Marceline Enterprises has a corporate tax rate of 25 percent and at the current time its cost of capital is 11 percent.
Should it proceed with the investment? Show your analysis.