Problem
Your company is considering the purchase of an evolutionary piece of equipment. This equipment would increase sales by $90,000 each year for nine years. The use of this equipment would increase annual costs by $25,000 and the equipment would be depreciated straight line over the useful life of nine years.
a) Assuming a tax rate of 21%, calculate net income.
b) Calculate the Operating Cash Flow for the project.
c) Assuming the project has an initial cost of $300,000 and lasts nine years, calculate the NPV of the project assuming a required rate of return of 10%.
d) Calculate the Internal Rate of Return on the project.
e) Should you accept or reject this project?