Problem $22-15$

Management of Braden Boats, Inc. is considering an expansion in the firm$$s product line that requires the purchase of an additional $$173,000$ in equipment with installation costs of $$11,000$ and removal expenses of $$1,500($Note: the removal expenses are considered terminal cash flows and not associated with the installation of the new equipment$).$ 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 $5$

$ $63,000$ $ $57,000$ $ $61,000$

The firm$$s income tax rate is $30$ percent and the weighted$-$average cost of capital is $16$ 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: $

The firm

should not

make the investment.straight$-$line depreciation. The expansion is expected to increase earnings before depreciation and taxes as follows:

to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar.

NPV: $

The firm should not $$ make the investment.

Interest Factors for the Present Value of One Dollar