Reference no: EM131849208
Manny Kurr is considering the purchase of a some new equipment to replace the existing equipment currently being used. Her is the information Manny has developed what purchasing the new equipment would have on his operating environment:
a) The initial cost of the new equipment is $1,800,000.
b) Training and installation of personnel will cost $10,000 and $50,000 respectively.
c) IRS guidelines allow Manny to depreciate the new equipment on a straight line basis over 5 years.
d) Manny's tax bracket is 28%
e) Manny's bank will give Manny a loan for 8% interest for 80% of the cost of the equipment.
f) Manny calculates his WACC to be 10%
g) Manny will save the following labor cost: Year 1 - $150,000, Year 2 - $180,000, Year 3 - $320,000 Year 4 - $400,000 and Year 5 - $500,000
Prepare a spreadsheet showing Manny's net benefit per year for the equipment purchase and calculate the net present value of the exercise.