NPV calculations Apt Ltd is considering the purchase of new equipment. The new equipment will cost $400 000 and have an estimated life of three years. Modifications to the equipment will cost an additional $50 000. There is no expected salvage value at the end of three years. It has been estimated that there will be increased cash revenue of $300 000 per year but increased yearly cash operating costs of $105 000 in the first two years and

$40 000 in year 3. However, by purchasing the new equipment, labour costs will reduce by $45 000 per year for two years. In addition, it will need to use equipment that is surplus to its current requirements and is presently leased to another firm for $5000 per year.

For tax purposes, the equipment would be depreciated using the straight line method over three years based on cost. The company’s required rate of return is 8 per cent.

Required:

Calculate the net present value of the project assuming the company does not pay tax.