16.ABC Company is evaluating a new project that would require thepurchase of equipment that is expected to increase revenues by $300,000 during the first year, $325,000 during the second year and $256,000 during the third year.Theequipment will cost $650,000 and behoused in a newbuilding with allocated overhead expenses of $25,000 per year.The equipment will be depreciated using the MACRS method over its 3 year class life and have a zero salvage value after 3 years.

ABC Company has $10,000,000 par value bonds outstanding with 15 years left to maturity and a coupon rate of 6% (paid annually) while similar bonds are yielding 5.35%.ABC has 1,000,000 shares of common stock outstanding with a book value of $10 per share and a market value of $11.50.The Beta of ABC is 1.35 and the market risk premium is 6% while the expected return on the market is 9%.ABC has a tax rate of 40%.

What is the NPV of the project?Will you recommend the purchase of the equipment?Explain your recommendation.