Taxes per year by purchasing piece of equipment

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Reference no: EM131928081

Your firm is considering the purchase of a new piece of equipment that would cost $250,000. This piece of equipment will be used on a short term (4 year) project. The equipment will be depreciated straight-line to zero over its four year life and you will be able to sell the piece of equipment for $40,000 at the end of the project. You will save $110,000 before taxes per year by purchasing the piece of equipment and you will be able to reduce working capital by $50,000. Assume a tax rate of 35% (HINT: Use the tax-shield approach to calculate the OCF) If the required return on the project is 13%, what is the NPV of this project? (Please format your answer as $XX,XXX.XX) What is the IRR of the project? (Please format your answer as XX.XX%) Should you accept or reject the purchase of this piece of equipment? (Please write either “Accept” or “Reject.”)

Reference no: EM131928081

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