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Should storey invest in the new equipment

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Storey, Inc. is considering the purchase and installation of new manufacturing equipment to replace its old, worn-out equipment. The following information is available.

Useful life of the new equipment, 8 years.
Cost of new equipment, $3,600,000.
Cost to set up new equipment, $200,000.
Estimated selling price of the new equipment at the end of its useful life, $60,000.
Annual operating savings, $700,000.
Working capital investment required, $600,000. This amount will be released at the end of the project.
Upgrade expense to the equipment at the end of the 5th year, $200,000.
Cost of the old equipment is $900,000 while the accumulated depreciation is $500,000 and the estimated market value is $300,000.
Tax rate is 25%. Cost of capital is 10%.

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Question 1: Should Storey invest in the new equipment?

Reference no: EM132554454

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