Golden Corporation is considering the purchase of new equipment costing $200,000. The expected life of the equipment

Question:

Golden is considering the purchase of new equipment costing $200,000. The expected life of the equipment is 10 years. It is expected that the new equipment can generate an increase in net income of $35,000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the economy.After tax
After tax probabilities................. Net Income
Recession .3...............................($15,000)
Normal .5................................. 25,000
Boom .2 .................................35,000
The equipment can be amortized using straight-line amortization for tax purposes. Golden's is 14%. What is the expected NPV? Should they purchase the new equipment?
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