Should the company buy the new piece of equipment

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Question - A company is considering investing in a new piece of equipment. The price of the equipment is $20 million and it is estimated that the equipment will generate an additional $5 million per year in net after tax cash inflows over the next 5 years. In year 6, the firm would have an estimated cash outflow of $2 million dollars due to environmental cleanup related to the equipment. Assume the firm has a required rate of return of 12%. Use net present value to conduct your analysis

A. Should the company buy the new piece of equipment? Show your calculations and decision to buy or not buy the equipment?

B. What will happen to the market value of the company if it buys the equipment? By how much?

Reference no: EM132953568

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