Tab Window Help Credit X 69::8297f0fd-dab3-45bf-be5d-830defe63e22 Join: 221257 $ Capital Budgeting.pptx 4 R Principles of Business Financ x + F B Example #2 % NPV $30.155.47 5 G Search or type URL Example #3 A company is considering the acquisition of production equipment which will reduce both labor and materials costs. The cost is $100,000 and it will be depreciated on a straight- line basis down to $0. The useful life of the equipment is five years, and it will have a $20,000 market value at the end of five years. Operating costs will be reduced by $30,000 in the first year and the savings will increase by $5,000 per year in years 2, 3, and 4. Due to increased maintenance costs, savings in year five will be $10,000 less than the year four savings. The equipment will also reduce net working capital by $5,000 throughout the life of the project. The firm's tax rate is 35 percent and the required return is 16 percent. Should the firm purchase this production equipment? V tv T MacBook Pro 6 G Example #3 Y B &