A company is considering purchasing a new piece of equipment costing $500,000. The equipment has a useful life of 8 years with no salvage value. It will generate annual revenues of $150,000 and annual operating expenses of $30,000. The company uses straight-line depreciation and is in a 40% tax bracket. The required rate of return is 12%.

Requirements:

1. Calculate the annual depreciation expense.
2. Determine the net operating income after taxes for each year.
3. Compute the annual cash flows.
4. Calculate the Net Present Value (NPV) of the project.
5. Should the company purchase the equipment based on NPV?