# FITCO is considering the purchase of new equipment. The equipment costs \$328000, and an additional \$109000 is needed to install it. The equipment will be depreciated straight-line tozero over a 5-year life. The equipment will generate additional annual revenues of \$260000, and it will have annual cash operating expenses of \$83000. The equipment will be sold for\$82000 after 5 years. An inventory investment of \$74000 is required during the life of the investment. FITCO is in the 40 percent tax bracket, and its cost of capital is 9 percent. What is theproject NPV?O \$118134.\$83826.\$100605\$67757

Question
76 views

Finance help

check_circle

Step 1

The purchase cost of new equipment is \$328,000 and installation cost is \$109,000. So, the total cost over new equipment will be \$328,000 + \$109,000 = \$437,000.

According to straight line depreciation, the annual depreciation is calculated below:

Step 2

Cash outflow at time 0, is calculated below:

Step 3

When calculating operating gross profit, depreciation is deducted from revenue which will decrease the cash flow. So, it is needed to add b...

### Want to see the full answer?

See Solution

#### Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in