Question: TEE Manufacturing Ltd is evaluating whether it should invest today in new equipment that cost $500,000. With the investment, it will be able to generate

TEE Manufacturing Ltd is evaluating whether it should invest today in new equipment that cost $500,000. With the investment, it will be able to generate an additional $100,000 annually, while its costs will rise by an additional 50,000 annually. The equipment shall be fully depreciated over five years using the straight-line depreciation method. Given the firm would need an additional net working capital of $20,000. Given that the firms cost of capital is 8% per annum and its tax rate is 20%, calculate the following: [Show all working] (a) Calculate the INITIAL INVESTMENT of the new equipment. (1 mark) (b) Calculate the annual OPERATING CASHFLOWS of the new equipment. (2 marks) (c) Assuming the firm can sell the equipment for $30,000 at the end of five years. Calculate the TERMINAL CASH FLOW of these equipment? (2 marks) (d) Calculate the NET PRESENT VALUE of the planned purchase and determine whether the corporation should go ahead with the purchase of these equipment. (3 marks)

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