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Storey, Inc. is considering the purchase and installation of new manufacturing equipment to replace its old, worn-out equipment. The following information is available. 1.
Storey, Inc. is considering the purchase and installation of new manufacturing equipment to replace its old, worn-out equipment. The following information is available. 1. Useful life of the new equipment, 8 years. 2. Cost of new equipment, $3,600,000. 3. Cost to set up new equipment, $200,000. 4. Estimated selling price of the new equipment at the end of its useful life, $60,000. 5. Annual operating savings, $700,000. 6. Working capital investment required, $600,000. This amount will be released at the end of the project. 7. Upgrade expense to the equipment at the end of the 5th year, $200,000. 8. Cost of the old equipment is $900,000 while the accumulated depreciation is $500,000 and the estimated market value is $300,000. 9. Tax rate is 25%. Cost of capital is 10%. Required: Should Storey invest in the new equipment?
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