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Question Cutcosts is considering automating some parts of the existing assembly line. The purchase and installation of the required equipment costs 420,000. This cost will
Question Cutcosts is considering automating some parts of the existing assembly line. The purchase and installation of the required equipment costs 420,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the equipment can be scrapped for 60,000. The automation will save the firm 120,000 per year in pre-tax operating costs, and it requires an initial investment in net working capital of 40,000. If the tax rate is 35 per cent and the discount rate is 10 per cent, what is the NPV of this project? Conclude.
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