Question
Management of Braden Boats, Inc. is considering an expansion in the firms product line that requires the purchase of an additional $168,000 in equipment with
Management of Braden Boats, Inc. is considering an expansion in the firms product line that requires the purchase of an additional $168,000 in equipment with installation costs of $11,000 and removal expenses of $2,000 (Note: the removal expenses are considered terminal cash flows and not associated with the installation of the new equipment). The equipment and installation costs will be depreciated over five years using straight-line depreciation. The expansion is expected to increase earnings before depreciation and taxes as follows:
Years 1 and 2 | Years 3 and 4 | Year 5 | ||||||
$ | 79,000 | $ | 89,000 | $ | 66,000 |
The firms income tax rate is 30 percent and the weighted-average cost of capital is 7 percent. Based on the net present value method of capital budgeting, should management undertake this project? Use Appendix B to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar.
NPV: $
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