NPV

You have just been hired in the Financial Planning & Analysis department of a firm. Your first assignment is to analyze a

potential project and recommend to accept it or not.

The project will require to acquire a new equipment for $$1\mathrm{.}2$M and install it for $$50,000.$ It will reduce the inventory

requirement by $$100,000$ and would use the same resources as another project with a $$150,000$ NPV$.$

The project will generate annual sales of $$400,000$ and incur operating expenses of $$280,000.$

The company$$s cost of capital is $9\%.$

The project will last $6$ years, after which, the machine can be sold for $$400,000.$

The company tax rate is $25\%$ and its CCA depreciation rate is $28\%.$

What is your recommendation?

Capital Budgeting

SHOW ALL STEPS PLEASE AND EXPLAIN