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The equipment will cost $810, is expected to have a working life of 4 years, and will be depreciated on a diminishing-value basis to a
The equipment will cost $810, is expected to have a working life of 4 years, and will be depreciated on a diminishing-value basis to a book value of zero. The equipment is expected to have a salvage value of $140 at the end of 4 years. The new equiprnent will improve efficiency and result in increased revenue of $900 in its first year of operation, but because of reduced efficiency from normal wear and tear, revenue will decrease by 3% (from the previous year's revenue) for each of the remaining 3 years of the equipment's life. Excluding maintenance, all other costs from operating the equipment will be $290 per year. Maintenance costs will amount to $100 in the equipment's first year of operation, and will then increase by $10 per year for the remaining 3 years of the equipment's life. The equipment will require additional net working capital of $100. The pet working capital will be recovered in full after the equipment is sold at the end of its working life. The equipment will be installed in a building that is owned by the company, but currently is not being used. If the project does not proceed, this building could be rented out for $100 per year. A feasibility study has been undertaken into the purchase of the new equipment. The cost of preparing the feasibility study was $500. The company has sufficient capital to undertake all positive-NPV projects. If the Payback Period method is used to evaluate projects, management's policy is that the maximum acceptable payback period is 3 years, and all cash flows in Year I would need to be recovered within 3 years for the project to be acceptable under this method. Student No Balance Sheet Online Data Credit Sarsace Project Info
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