Platypus Playground is considering purchasing new playground equipment to expand its indoor playground business. They currently own and operate 4 very profitable indoor playground facilities. Assume that the expected annual cash inflows from the new playground equipment will be $400,000 in the first year, $450,000 in the second year and $475,000 in the third year. The playground equipment costs $625,000 and requires working capital to increase by $100,000. The equipment has a useful life of 3 years with a salvage value of $100,000. Platypus Playground can release $50,000 in working capital once the equipment is sold. The company has a 9% required rate of return. The equipment is a Class 8 asset (CCA of 25%). The company has a tax rate of 30%.

Calculate the NPV of this project. What are your recommendations for Platypus Playgrounds regarding this project? (10 marks)

What is the payback period for this equipment