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ABC Company is analyzing the purchase of new equipment. The following information is available: Initial investment Working capital needed now Equipment repair in 3
ABC Company is analyzing the purchase of new equipment. The following information is available: Initial investment Working capital needed now Equipment repair in 3 years Annual net cash inflows Salvage value of equipment in 8 years Overhaul of equipment in 5 years Cost of capital Life of equipment $480,000 $110,000 $ 35,000 $ 96,000 $ 22,000 $ 49,000 4% 8 years 35% Income tax rate Assume the following regarding this potential purchase of new equipment: 1) The working capital needed now will be released at the end of the 8 years for investment elsewhere. 2) If the new equipment is purchased, the equipment currently in use can be sold at the time of buying the new equipment for $14,000. Calculate the net present value (NPV) of the equipment.
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