question 7

QUESTION 7 A company is considering the purchase of equipment costing $84000 which will permit it to reduce its existing labour cost by $21000 each year for twelve years. The company estimates that it will have to spend $2000 every two years overhauling the equipment. The equiment may be depreciated using straight line depreciation over 12 years for tax purposes. The company tax rate is 30 cents in the dollar and the after corporate tax cost of capital is 10% per annum. Assume: 1. Salvage value of zero. 2. The outlay of $84000 occurs at time zero. 3. All other cash flows including, tax payments and credits are made at the end of the year. 4. No overhaul is required in year 12. What is the NPV to the nearest dollar? Be careful not to round until the last calculation