Some new equipment to replace the existing equipment

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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.

Reference no: EM131849208

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