FIN1FOF- FUNDAMENTALS OF FINANCE- ASSIGNMENT PART 3 - PROJECT EVALUATION The following data, as well as information from Part 2, should be used in evaluating the project to purchase new equipment. the equipment will cost $16,000 is expected to have a working life of 4 years, will be depreciated on a diminishing-value basis to a book value of zero The equipment is expected to have a salvage value of $2,900 at the end of 4 years. The new equipment will improve efficiency and result in increased revenue of $11,600 in its first year of operation, but because of reduced efficiency from normal wear and tear, revenue will decrease by 8% (from the previous year's revenue) for each of the remaining 3 years of the equipment's life Excluding maintenance,all other costs from operating the equipment will be $2.700 per year Maintenance costs will amount to $1,300 in the equipment's first year of operation, and will then increase by $300 per year for the remaining 3 years of the equipment's life. The equipment will require additional net working capital of $1,600 The net working capital will be recovered in full after the equipment is sold at the end of its working life The equipment will be installed in a building that is owned by the company but currently is not being used If the project does not proceed, this building could be rented out for $1,800 per year. A feasibility study has been undertaken into the purchase of the new plastic injection machine. The cost of preparing the feasibility study was $4,000. Management has indicated that, should you decide to use the Payback Method in your recommendation, ALL cash outflows at the beginning of the project (including any increase in net working capital and any other outlays in Year 0) should be recovered from the project's free cash flows within a maximum period of 3 years in order for the project to be acceptable under the Payback Period method. This question on the yellow paper needs to be answered, but it asks to follow up the answers from part 2. so the answers to part 2 are on the white paper.

FIN1FOF- FUNDAMENTALS OF FINANCE- ASSIGNMENT PART 3 - PROJECT EVALUATION The following data, as well as information from Part 2, should be used in evaluating the prolect to purchase new equipment. he equipment willcost $16,000 is expected to have a working life of 4 years, will be depreciated on a diminishing-value basis to a book value of zero The equipment is expected to have a salvage value of $2,900 at the end of 4 years. The new equipment will improve efficiency and result in increased revenue of $11,600 in its first year of operation, but because of reduced efficiency from normal wear and tear, revenue will decrease by 8% (from the previous year's revenue) for each of the remaining 3 years of the equipment's life Excluding maintenance,all other costs from operating the equipment will be $2.700 per year Maintenance costs will amount to $1,300 in the equipment's first year of operation, and will then increase by $300 per year for the remaining 3 years of the equipment'slfe The equipment will require additional net working capital of $1,600 The net working capital will be recovered in full ater the equipment issold at the end ofits working life The equipment willbe installed in a building that is owned by the company, but currently is not being used If the project does not proceed, this building could be rented out for $1,800 per year. A feasibility study has been undertaken into the purchase of the new plastic injection machine. The cost of preparing the feasibility study was $4,000. Management has indicated that, should you decide to use the Payback Method in your recommendation, ALL cash outflows at the beginning of the project (including any increase in net working capital and any other outlays in Year 0) should be recovered from the project's free cash flows within a maximum period of 3 years in order for the project to be acceptable under the Payback Period method