P10–9 NPV and maximum return A firm can purchase new equipment for a $150,000 initial investment.

The equipment generates an annual after-tax cash inflow of $44,400 for 4 years.

a. Determine the net present value (NPV) of the equipment, assuming that the firm has a 10% cost of capital. Is the project acceptable?

b. If the firm’s cost of capital is lower than 10%, does the investment in equipment become more or less desirable? What is the highest cost of capital (closest wholepercentage rate) that the firm can have and still find that purchasing the equipment is worthwhile? Discuss this finding in light of your response in part a.