Company Successful plans to expand its business into China Market. The mangers are considering replacing one of the main equipment, Model XYZ, with a new updated equipment, Model ABC. The proposed investment information follows:

New equipment ABC purchase price

$190,000

Installation cost for new equipment ABC

10,000

Additional working capital (WC) for new equipment ABC (the WC will be recovered at the end of the project)

3,000

New equipment useful life

3 years

Disposal/salvage value (Net book value) of new equipment ABC for depreciation purpose, end of year 3

$8,000

Cash selling price of new equipment ABC, end of year 3

$5,000

Current cash selling price of old equipment XYZ

$2,000

Current Net book value of old equipment XYZ

0

Annual increase in before-tax operating income if purchasing the new equipment ABC

$90,000

Income tax rate

20%

Required rate of return

12%

Question (Round the answer to 2 decimals, such as $15.72)

1. What is the net initial investment (t=0) (9 points)?
2. What is the cash flow from operations (t=1 to t=3) (5.5 points)?
3. What is the terminal disposal of investment (t=3) (8 points)?
4. What is the NPV of the project (9 points)? Do you think the company should replace the equipment (1 point)?
5. Any other non-financial factors that the company should consider when making decisions (6 points) (List at least 3)?