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Kai Hotel Corporation is planning to expand. This will require the acquisition of new equipment....

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Accounting

Kai Hotel Corporation is planning to expand. This will require the acquisition of new equipment. The equipment will cost $350,000, plus an additional $3,000 for delivery and $30,000 for installation. It will be depreciated straight-line to a zero value over the 8-year economic life of the project. The expected salvage value of this new equipment at the end of 8 years is $35,000. Additional net working capital of $55,000 will be needed to acquire the new equipment. If new equipment is acquired, existing equipment can be salvaged for $25,000. The existing equipment has been completed depreciated to zero. Kai Hotel Corporation expects the expansion to increase annual sales by $110,000 each year. Annual cash operating expenses are expected to increase by $50,000 each year. The marginal tax rate is 40%.

1.1 Calculate the net investment. 1.2 Calculate the NCF for year 1 through 8.

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