(Ignore income taxes in this problem.) Laura Summers, the CFO of American Colonoscopy Center is considering opening a new center in New York. She would need to purchase a set of colonoscope, endoscopy snare, flexible sigmoidoscope and enteroscope costing $1,000,000 to equip the new center. The project would require additional working capital of $500,000 which would be released for use elsewhere at the end of the project. Laura 's marketing studies indicate that the annual cash inflow from the business will amount to $360,000. Laura wants to operate the colonoscopy center business for only six years. She estimates that the equipment could be sold at that time for about 10% of its original cost. Laura's required rate of return is 15%.
Required:
If asked, would you recommend this investment? Please explain and show your work.