Allegretti Products, Inc. is considering the purchase of a new piece of equipment to introduce a new product line. The equipment will cost $125,000, including setup cost, installation and testing. The estimated be-fore tax annual cash flow from operations is $50,000, and the investment will require and initial investment in working capital of $25,000. The estimated terminal disposal price is $10,000. Allegretti has an effective income tax rate of 30%.

The equipment will have an economic life of 9 years, but will be depreciated for tax purposes over 7 years using MACRS. The MACRS depreciation rates for each of the years (using the half-year convention) are as follows: