Company X is planning to add another project, which will generate $150,000 annual revenue for...
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Company X is planning to add another project, which will generate $150,000 annual revenue for the company in the next 4 years, with operating costs of $45,000 per year. To take this new project, the company has to purchase a new equipment with a price of $150,000, along with $20,000 shipment fee. Additionally, the company need to add additional $40,000 in net working capital. The equipment will be depreciated using 3-year MACRS depreciation method (3-year MACRS depreciation rates are showing below). The company thinks the equipment could be sold out by the end of year 4 for $21,000. With a tax rate of 20% and required return of (11)%, should the company take this project or not? Why? (Please show both NPV and IRR decisions).
3-year MACRS
1 33.33%
2 44.45%
3 14.81%
4 7.41%
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