Your firm is exploring investing in a piece of equipment. The cost of the equipment is

$$200,000.$ Given the equipment will generate an additional $$50,000$ in revenue each year and

cost $$10,000$ each year. The equipment will be fully depreciated over five years using the

straight$-$line depreciation method. With the investment, your firm would need additional net

working capital of $$40,000.$ Given that your firm$$s cost of capital is $12\%$ per annum and tax

rate of $20\%$ calculate the following:

$($a$)$ Calculate the INITIAL INVESTMENT of the investment.

$(1$ mark$)$

$($b$)$ Calculate the annual OPERATING CASHFLOWS of the investment.

$(2$ marks$)$

$($c$)$ Assuming your firm can sell the equipment for $$15000$ at the end of five years.

Calculate the TERMINAL CASH FLOW.

$(2$ marks$)$

$($d$)$ Calculate the NET PRESENT VALUE of the above investment. Explain whether the

firm should go ahead with the purchase of the equipment.