You hired ABC consulting firm to analyze the option to expand your sales. According to ABC consulting this is a good idea. You paid $150,000 to ABC Consulting firm for its services. Based on the ABC consulting report to decide to go ahead with the project. The new equipment costs $756,000. This cost could be depreciated at 30% per year (Class 10). The equipment would actually be worth $52,000 in five years. The new equipment will generate a profit of $325,000 per year before taxes and operating costs. Suppose the new equipment requires us to increase networking capital by $15,000 when we buy it. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%.

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Cost of equipment 75600000 Annual profit before tax and operating costs 3... View the full answer