Golden Corporation is considering the purchase of new equipment costing $200,000. The expected life of the equipment is 10 years. It is expected that the new equipment can generate an increase in net income of $35,000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the economy. After tax

After tax probabilities Net Income

Recession .3 ($15,000)

Normal .5 25,000

Boom .2 35,000

The equipment can be amortized using straight-line amortization for tax purposes. Golden's cost of capital is 14%. What is the expected NPV? Should they purchase the new equipment?

Amortization Schedule:

200,000 = $20,000

10,000