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Question - ABC Company is considering the acquisition of a new piece of equipment to replace an old, outdated machine currently used in its business operations. The new equipment would cost $135,000 and is expected to last 9 years. The new equipment would require a repair of $25,000 in year four and another repair costing $80,000 in year eight. Purchasing this new equipment would require an immediate investment of $30,000 in working capital which would be released for investment elsewhere at the end of the 9 years. The new equipment is expected to have a $10,000 salvage value at the end of nine years. The new equipment is expected to generate a cost savings of $60,000 per year. ABC Company has a cost of capital of 16% and an income tax rate of 40%.
Required - Calculate the net present value (NPV) of the new equipment. If your answer is negative, place a minus sign in front of your answer with no spaces in between (e.g., -1234).
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