Equipment that will be added to an ongoing asset pool

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Reference no: EM131063177

HFX Ltd. has the opportunity to undertake the following project: The project requires an immediate $1,000,000 investment in equipment that will be added to an ongoing asset pool with a 20% CCA rate. The project will have a total life of 10 years. Net working capital will increase by $250,000 immediately. An additional working capital investment of $100,000 will be required at the time the equipment is maintained at the end of year 5. The working capital will be freed up at the end of the project. This new equipment will generate $500,000 in additional cash sales and will cost $120,000 for cash expenses each year. These sales and expenses will continue for ten years. At the end of the tenth year the project will end and the equipment will be sold. The market value of the equipment then is expected to be $200,000. HFX Ltd. has a 44% tax rate and a 12% cost of capital. Determine the project's NPV. Should HFX accept or reject the project?

Reference no: EM131063177

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