Calculate initial investment in cost of new asset

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Question 1: BITFIT is considering the purchase of new equipment. The equipment costs $360,000, and an additional $120,000 is needed to install it. The equipment will be depreciated straight-line to zero over a 6-year life. The equipment will generate additional annual revenues of $265,000, and it will have annual cash operating expenses of $80,000. The equipment will be sold for $75,000 after 6 years. An inventory investment of $73,000 is required during the life of the investment and will be recovered by the end of the project. The company tax rate is 30 percent, and its cost of capital is 10 percent. What is the project NPV?

Question 2: Explain how each of the following inputs is used to calculate initial investment:

i. Cost of new asset

ii. Installation costs

iii. Proceeds from sale of old asset

iv. Taxes on sale of old asset

v. Change in net working capit

Reference no: EM132513507

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