Question
Consider a capital expenditure project to purchase and install new equipment costing $16,000. Installation is estimated to be $4000. The equipment has an expected life
Consider a capital expenditure project to purchase and install new equipment costing $16,000. Installation is estimated to be $4000. The equipment has an expected life of 10 years and estimated salvage value of $10,000. The project requires an additional working capital investment of $5000. The project revenues are forecast at $25,000 per year and cash expenses are estimated at $15,000 per year. The firm has a 40% marginal tax rate and a 12% weighted average cost of capital. Determine whether this project should be accepted or rejected using NPV, IRR, and PI.
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