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I am working on this problem and trying to figure out how to find the
firm has decided to replace a major piece of industrial equipment. The equipment costs $690,000 to
purchase and install and is expected to have a useful life of 5 years, after which it will be sold on the open
market and is expected to have a salvage value of $200,000. The firm has a cost of capital of 9.1%.
The new equipment will be one of a large group of assets with a CCA rate of 20%. The corporate tax rate is
40%. The company is responsible for maintenance and insurance costs of $40,000 per year. The new
equipment will allow the firm to increase production, and sales will increase by $270,000 per year.
The firm also anticipates that it will have to maintain its working capital requirements above its regular
levels as follows:
Year 0: $50,000; Year 1: $60,000; Year 2: $70,000; Year 3: $60,000; Year 4: $50,000. It is further
anticipated that at the end of the fifth year, working capital requirements will return to pre-project levels.
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