A manufacturing company purchased a material handling system at a cost of $80,000 in year zero. The company expects to use the asset for 7 years and then sell it (at the end of year 7) on the market for $15,000. Accounting information establishes that the asset can be depreciated using the maximum percentage method, with a fiscal useful life of 10 years.

The company expects incremental revenue of $120,000 in year 1, and then sees starting in year 2 an increase in this revenue of 5% per year over the previous year. Similarly, the production management estimates annual incremental operating costs of $40,000, during the 7 years of the project, as well as maintenance expenses of $13,500 at the end of years 3, and year 6. Additionally, the company considers it necessary to investment of ancillary equipment to support production to a total amount of $30,000 to be realized at the end of year 3. This equipment can be classified with a fiscal life of 7 years according to the maximum percentage method. In any case, if the company decides to liquidate this asset at any time, the supplier company has agreed to pay an amount of $10,000 (regardless of its age).

Determine the net present value (NPV) of this project, considering an MARR equal to 15% per year and a tax rate of 35%. The company plans to finance 75% of the investment cost of the first equipment (to be acquired in year 0) with a 5-year bank loan that offers an effective annual compound rate of 12%. Meanwhile, the rest of the investment will be provided by the company, while the second equipment (to be acquired in year 3) will be purchased 100% with company funds. Note: Detail your logic, procedures, results and conclusions.