Faisal & Sons Company may buy Blood testing equipment costing $60,000. This equipment is expected to reduce labor costs of clinical staff by $20,000 annually. The equipment has a useful life of five years but falls in the three-year property class for cost recovery (depreciation) purposes. No salvage value is expected at the end. The corporate tax rate for Co. is 38 percent (combined federal and state), and its required rate of return is 15 percent. (If profits after taxes on the project are negative in any year, the firm will offset the loss against other firm income for that year.) On the basis of this information, what is the net present value of the project? Is it acceptable?
NPV is negative, it is better not to invest in the project
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