Your firm is considering the purchase of a new piece of equipment for $20,000.

The equipment will be straight line depreciated over four years. The salvage value (final book value) is 10 percent of the purchase price.The equipment will increase the earnings before interest, tax and depreciation by $8000 for each of the four years the equipment is used. The tax rate is 21 percent and the required rate of return is 10 percent.

Should the equipment be purchased?

No. NPV = 5227.72

Yes. NPV = 5944.89

No. NPV = 3448.62