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ABC Company is considering the acquisition of a new piece of equipment to replace an old , outdated machine currently used in its business operations.The
ABC Company is considering the acquisition of a new piece of equipment toreplace an old, outdated machine currently used in its business operations.The new equipment would cost $135,000 and is expected to last 9 years. Thenew equipment would require a repair of $25,000 in year four and anotherrepair costing $80,000 in year eight. Purchasing this new equipment wouldrequire an immediate investment of $30,000 in working capital which wouldbe released for investment elsewhere at the end of the 9 years. The newequipment is expected to have a $10,000 salvage value at the end of nineyears. The new equipment is expected to generate a cost savings of $60,000per year. ABC Company has a cost of capital of 16% and an income tax rateof 40%.Calculate the net present value (NPV) of the new equipment. If your answeris negative, place a minus sign in front of your answer with no spaces inbetween (e.g., -1234).
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