You are evaluating the proposed purchase of some new equipment by your company, FlightRecord Ltd. The price of the machinery is $275,000, and it would cost another $25,000 to adapt it to your firms purposes. The machinery would be sold after 6 years for $60,000 and depreciation is based on the straight-line method. Use of the equipment would require an increase in Net Working Capital of $12,000 which would be recovered in the final year of the investment project. The machinery is expected to save the firm $55,000 per year in operating costs. The corporate income tax rate is 35%.

Required: a) What is the initial investment outlay associated with the project? b) What is the terminal cash flow in Year 6? c) Critically examine the treatment of working capital in the above calculations. d) If the projects required rate of return is 14%, should the equipment be purchased? e) Perform a detailed critical evaluation of how FlightRecord Ltd could increase the NPV of the project by using debt finance.