Capital investment analysis ABC Division is considering an investment proposal to purchase new equipment. The following data has been gathered:

Purchase of equipment $200 000 Modifications to equipment $55 000 The duration of the contract is three years. The following revenue and cost estimates have been made:

Revenue per year Cash operating costs per year Years 1 to 3 $190 000 $90 000

• The new machine is to be depreciated over the life of the contract.

• Labour savings of $30 000 per year are expected.

• ABC has an existing machine that can be sold for its book value of $21 000 at the time of purchasing the new machine.

• Additional tax payable each year has been estimated to be $15 000.

Required:

Assuming the company’s required rate of return is 10 per cent, calculate the NPV of the project.