Question
AY is looking at a new production system with an installed cost of $10,000,000 to maintain product quality to reduce production costs. The equipment is
AY is looking at a new production system with an installed cost of $10,000,000 to maintain product quality to reduce production costs. The equipment is depreciated at a rate of 20% per year (class 8) over the projects five-year life, at the end of which equipment can be sold for $2,000,000. The new equipment will save the firm $2,000,000 per year in pre-tax operating costs, and the new production system requires an initial investment in net working capital of $1,500,000. If the tax rate is 34% and the discount rate is 12%, then what is the net present value of this project?
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