Question
A company is considering a capital investment in packaging and labeling. To evaluate the efficiency of its equipment and review the alternatives it hires a
A company is considering a capital investment in packaging and labeling. To evaluate the efficiency of its equipment and review the alternatives it hires a consultant for a fixed fee of $20,000.
Analysis suggests that more efficient new equipment will result in incremental after-tax operation cash flow of $320,000 a year for 5years. The after-tax salvage value of the equipment is expected to be $250,000 in year 5(assume there will be no taxes assessed on salvage value). The company's initial investment to install will be $850,000. Integration expense at installation will be $100,000. What is the NPV of the project if the required rate of return is 16%? should company invest in the new equipment?
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