The board of directors, of XYZ, Inc., is evaluating a new piece of equipment that would decrease operating costs by $50,000. The project's cost is $70,000. The project has a 3-year depreciable life and the company will use accelerated depreciation. At the end of 3 years, the will be scrapped. In other words, the salvage value will be zero. The tax rate is 40% and the project’s cost of capital is 12%.
1) Determine the projects’ NPV (all work needs to be shown)
2) Would you purchase the equipment and why?