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You were recently hired as the Financial Controller for Highway$4000$Ltd$.,$ a road construction company in Antigua. Your company has been winning more and more competitive bids and business has been growing steadily. This requires periodic upgrades of the company's capital equipment and management is considering several investment projects, based on a cost of capital of $12\%.$

One of your company's major clients is the Antigua government. Recently the Ministry of Transportation and Mining, announced that the government will be opening its road construction projects to bids from foreign developers, a practice that was previously absent$.$ This has

significantly shifted the competitive landscape of the road construction industry in Antigua and management recognizes that only feasible projects will provide convincing arguments to the Board of directors $($BOD$)$ for purchase consideration. To this end, the company demands a speedy recovery of its capital investment of no more than three and a half years.

Relates to the acquisition of a new crane, primarily for cost savings purposes. Management has determined that it must conduct a rigorous evaluation of the proposed crane acquisition and gathered the following data $($all costs are stated in US$$)$:

Initial purchase price $-$ US$$150,000$

Additional cost to modify asset for use by Highway$4000$ Ltd$.-$S$$30,000$ Sale price $($after $3$ years$)-$ US$$70,000$

Management further notes that if it is to acquire the crane, the net operating working capital $($for spare parts$)$ will have to increase by US $$6,000$ per year. The crane is not expected to increase revenues directly but is expected to save the company before tax costs of US $$30,000$ per annum. Highway$4000$ Ltd$.\text{'}$s tax rate is $40\%.$

Assets of this nature are classified as $3-$year property for purposes of MACRS calculation with application rates of $33\%,45\%,15\%,$ and $7\%$ annually.

As the Financial Controller, write a memorandum to your CEO providing the following

i$)$ Compute the net investment if Highway$4000$ Ltd$.$ acquires the crane.

ii$)$ Outline the operating cashflows for years $1,2$ and $3.$

iii$)$ Determine the terminal cash flow.

iv$)$ Advise the CEO on whether the crane should be procured based on the net persent value $($NPV$)$ method and why.