University Inn is planning to replace its washing machine, a major capital expenditure for this

year. General Manager, John Adams, is reviewing the follow information for decision making.

The purchase price of the new washing machine at time $0=$$$10,000$

Life of the new machine is $10$ years $($salvage value at the end of year $10=$$$0)$

The new machine is expected to make $$25,000$ in laundry revenues each year.

The expense for operating and maintaining laundry services is $$23,000$ each year.

Mr$.$ Adams knows the required rate of return for similar capital investment is $24\%(K_E).$

University Inn will finance the purchase by using $50/50$ mix of debt and equity.

The cost of debt $(K_D)$ to the firm is $10\%.$

University Inn's marginal tax rate is $40\%.$

Mr$.$ Adams needs your assistance to determine the following for his purchase decision:

Required:

a$.$ weighted average cost of capital $(K_A)$

b$.$ operating cash flow for $10$ years $($OCFt$)$

c$.$ Net Present Value $($NPV$)$ using Present Value Annuity Factor $(PV{A}_n=10,k=15)$

Should Mr$.$ Adams make this purchase? Why?