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You must evaluate the purchase of a proposed piece of equipment. The cost of the...

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Finance

You must evaluate the purchase of a proposed piece of equipment. The cost of the equipment is $50,000. The installation and transportation cost of bringing the equipment to its location is $6,000. The equipment falls into the MACRS 3-year class. The project is expected to increase revenues by $80,000 each year and increase operating costs (excluding depreciation) by $30,000 each year. This project leads to an increase in net operating working capital by $10,000. You can salvage the equipment for $10,000 at the end of the project. What is the project's cash flow in Years 1, 2, 3, 4? (use MACRS of 33%, 45%, 15%, 7%). Use the NPV and IRR criteria to evaluate this project. Is this project profitable? Use marginal tax rate of 21% and WACC of 10%.

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