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Calculate using the formulathanks The board of directors of Lacombe Inc is thinking of replacing equipment that cost 8000000$ 10 years ago. The performance of
Calculate using the formulathanks
The board of directors of Lacombe Inc is thinking of replacing equipment that cost 8000000$ 10 years ago. The performance of this equipment has been rather poor lately which encourages the directors to replace it by a new model that costs 9000000$ today. The supplier of new equipment offers an exchange value of 2000000$ for the old model, if Lacombe purchases the new model from him. At this moment, the company is producing 10000 units of its product that it sells at 750$/ unit while the cost of production is 500$/ unit. Our projection says that during the project (for the next 10 years), the new equipment will increase the production by 20%, price/unit will be 700$ and cost of production 400$/ unit. Lacombe is renting a warehouse for 50000$/ year (paid at the end of each year). The projects requires a larger warehouse for an annual rent of 150000$/ year (to be paid at the end of each year). The project requires also the purchase of a land at 3000000$. We anticipate that it will be sold at 4000000$ at the end of the project (in 10 years). At this moment, the supplier account and client account of Lacombe are at 300000$ each. This project requires a total client and supplier account of 400000$ each. All accounts will return to zero at the end of project. The project requires 3 new technicians with an annual salary will be 50000$ each. Also, given the performance of new equipment, 20 employees whose annual salaries 30000 /year can be laid off with a lay off premium of 4000$ for each employee. This expense is tax deductible. The tax rate of Lacombe Inc is 40% and depreciation rate of the new equipment is 20% with declining method. If investors require 14% on this type of project, calculate the NPVStep by Step Solution
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