abc limied is considering whether to invest $90000 in the purchase of a new item of equipment. The equipment would be paid for with a down-payment of $60000 and the payment of the remaining $30000 six weeks later.the company has already spent $8000 on design and feasibility work,and with the operational managemnet team are keen to purchase the equipment quickly.
the equipment is expected to have a life of three years,after which time it should have a resale value$5000.The equipment will be depreciated by the straight-line method over three years.Lt has been estimated that an investment of$20000 in working capital will be needed.
As a resuil of acquiring the equipment,it is expexted that will be an increase in annual cash profits,as follows:
year 1:$37000
year 2:$48000
year 3:$26000
(a)Calculate the expected NPV if the investment,if the cost of capital is 8%
(b)Calculate the expexted IRR of the investment,using the interpolation method and taking 12% as hte cost of capital for calculating another NPV.