Klein Dermatology is contemplating purchasing new laser therapy equipment. This new equipment would cost $300,000 to purchase and $20,000 for installation. Klein estimates that this new equipment would yield incremental margins of $98,000 annually due to new client services but would require incremental cash maintenance costs of $10,000 annually. Klein expects the life of this equipment to be 5 years and estimates a terminal disposal value of $20,000. Klein has a 25% income tax rate and depreciates assets on a straight-line basis (to terminal value) for tax purposes. The required rate of return on investments is 10%. Q.Is the project worth investing in from an NPV standpoint?
Klein Dermatology is contemplating purchasing new laser therapy equipment. This new equipment would cost $300,000 to purchase and $20,000 for installation. Klein estimates that this new equipment would yield incremental margins of $98,000 annually due to new client services but would require incremental cash maintenance costs of $10,000 annually. Klein expects the life of this equipment to be 5 years and estimates a terminal disposal value of $20,000. Klein has a 25% income tax rate and
Q.Is the project worth investing in from an NPV standpoint?
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