Exercise 5: (25 points)

Auto.ine decides to take a technological turn by replacing its former production unit, with a new one that is more technology-oriented and less dependent on the workforce. All facilities estimated at $10,000,000 amortized at a rate of 40% decreasing.

An immediate expenditure of $150,000 (taxable and non-depreciable) is planned to train the staff who will operate on the new facilities. This investment creates a working capital requirement worth 600,000 S, recoverable in full.

The company estimates to increase its operating cash flows by $2,500,000 before tax. On the other hand, the company must assume an expense for the maintenance and replacement of consumable components of new installations in the amount of 100,000 S before tax every 2 years.

This investment will have a residual value of $4,000,000 at the end of the investment horizon, which is set at 5 years by senior management.

The tax rate is 30% and the rate of return required by senior management is 12% per year. (The firm is considering a scenario in which the asset class ceases to exist and will be closed).

Based on the criterion of choosing the inverse of net present value (NPV), will you accept this investment project?