Management of Braden Boats, Inc., is considering an expansion in the firm's product line which requires the purchase of an additional $175,000 in equipment with installation costs of $15,000 and removal expenses of $2,500. The equipment and installation costs will be depreciated over 5 years using straight-line depreciation. The expansion is expected to increase earnings before depreciation and taxes as follows:
Years 1 and 2 - $70,000
Years 3 and 4 - $80,000
Year 5 - $60,000
The firm's income tax rate is 30% and the weighted average cost of capital is 10%. Based on NET PRESENT VALUE METHOD of capital budgeting, should management undertake this project? Why?