Company A, Inc. is considering the purchase of a new equipment for $600,000. The firm's old equipment has a book value of $95,000 but can only be sold for $55,000.

The new equipment will be subject to 25% CCA. It is expected to generate additional revenue of $5,000,000 per year with related expenses of 3,500,000 for 10 years before taxes. Company A is in the 40% tax bracket.

Company A capital structure is 45% equity and 55% debt. Cost of equity is 13.5% and cost of debt 9% before tax.

Salvage value of equipment after 10 years will $25,000.

1. Calculate the net present value (NPV) of the equipment purchase. Include all calculations
2. Should Company A, Inc. buy equipment. Explain why
3. What are the 2 advantages of NPV method in comparison with the payback method? Explain.
4. How would you modify your capital budgeting analysis (NPV methodology) to account for expected high inflation