Question

Superserv Inc. intends to acquire new equipment for $10 million, which has an estimated life of 5 years and a salvage value of $800K. The new equipment is expected to allow additional annual sales of $5 million over the next 5 years. The associated additional annual operating costs are expected to be $3 million, while the interest on debt issued to finance the project is $1.5 million. In addition, working capital will increase by $1.2 million at the outset. The project's cost of capital is 10%. The firm's tax rate is 40%. The annual depreciation charge on the new machine is $2 million. What is the project's NPV? ($-2.5753m)

          Superserv Inc. intends to acquire new equipment for $10 million, which has an estimated life of 5 years and a salvage value of $800K. The new equipment is expected to allow additional annual sales of $5 million over the next 5 years. The associated additional annual operating costs are expected to be $3 million, while the interest on debt issued to finance the project is $1.5 million. In addition, working capital will increase by $1.2 million at the outset. The project's cost of capital is 10%. The firm's tax rate is 40%. The annual depreciation charge on the new machine is $2 million. What is the project's NPV? ($-2.5753m)

Added by Alvaro P.

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