Your Firm Is Considering The Purchase Of A New Piece Of Equipment For $22,000. The Equipment Will Be Straight-Line Depreciated Over Four Years. The Salvage Value (Final Book Value) Is 10% Of The Purchase Price. The Equipment Will Increase The Earnings Before Interest, Tax, And Depreciation By $8,000 For Each Of The 4 Years The Equipment Is Used. The Tax Rate
Your firm is considering the purchase of a new piece of equipment for $22,000. The equipment will be straight-line depreciated over four years. The salvage value (final book value) is 10% of the purchase price. The equipment will increase the earnings before interest, tax, and depreciation by $8,000 for each of the 4 years the equipment is used. The tax rate is 28% and the required rate of return is 10%. What is the NPV and should the equipment be purchased?
Group of answer choices
a.The NPV is -2238.95, No the equipment should not be purchased.
b. The NPV is 1733.75. No, the equipment should not be purchased.
c. The NPV is 2154.49. Yes the equipment should be purchased.
Could you show the workings to get the answer. Thank you