You can buy a pipeline for the transportation of natural gas to market for 1,000,000. It has an expected life of 7 years and has a scrap value of 300,000. Your tax rate is 40% and expected income from the investment is 800,000 a year. You do not have an inventory investment, but 50,000 in accounts receivable. You have 10,000 a month in operating expenses and 30,000 in SG &A for each year. If your cost of capital is 9%, should your company buy the pipeline?
Please show all work and formulas used.