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Question - Corad Corporation is considering investing in a new piece of equipment that would allow them to automate their production process. The equipment would cost $450,000 and have a salvage value of $100,000 at the end of the 8 year useful life. The equipment would require a $150,000 repair at the end of year 4.
The equipment is expected to generate additional annual cashflow from current customers of $220,000 however it will increase annual operating costs by 70,000 and annual maintenance costs by 53,000. The company uses an 9% discount rate.
Required -
A) Compute the Payback period.
B) Compute the Net Present Value (NPV).
C) State whether the company should move forward with the investment. List 3 other factors that the company could consider before making the decision.
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