Siclan Company Problem

The Siclan Company is considering opening a new office. The company owns the building and would sell it for $74,000 after taxes if it does not open the new office. The building has been depreciated down to a zero book value. The equipment that will be used in the building costs $69,000. The equipment that would be used has a 3 year tax life, depreciated straight-line, with 0 scrap value. (If the company tried to sell the equipment at end of year 3, it would receive 0 sales proceeds). (There will be no new revenues after the end of year 3.) No new working capital is required.

Cost of Capital = 15%

Due to opening the office and using the equipment, additional annual Revenues = $100,000

Additional annual Operating cost, excluding depreciation = $20,000

Tax rate = 30%

In excel, show following work:

What is the required cash outflow associated with the acquisition of a new machine at t = 0?What is the projects NPV