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A corporation is considering purchasing a new plant asset. The asset will cost $40,000. If...

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Finance

A corporation is considering purchasing a new plant asset. The asset will cost $40,000. If they purchase the asset they will sell an asset they currently own. The book value of the asset they own is $10,000 (assume the asset will be sold for book value). The corporation requires a 10% return on similar investments. The corporation plans to use the asset for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000 (assume the book value will equal the salvage value at the end of year 4). The corporation estimates additional sales revenue of $210,000 each year (assume the cash will be collected in the year the revenue is recorded). They also estimate the following additional expenses: Year 1 $230,000 (includes depreciation) Year 2 $199,000 Year 3 $202,000 Year 4 $203,000 Assume the expenses will be paid each year. In Year 1 the corporation will record $30,000 in depreciation expense (bonus depreciation). Ignore taxes in this example. 1) Calculate the net present value 2) Calculate the profitability index

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