Problem:
Thomson Media is considering some new equipment which costs $70,000. The equipment has a 3-year economic life and would be depreciated by the MACRS method over a 3 years class life (rates are .33, .45, .15, .07). It would have a pre-tax salvage value of $10,000 at the end of Year 3, when the project would be closed down. Also, $10,000 in new working capital would be required. Revenues are expected to be constant over the project's 3-year life, but the firm is expected to save $30,000 per year in operating costs. The tax rate is 35% and the WACC is 10%.
Required:
Question: What is the project's NPV?
Note: Provide support for rationale.