This alternative involves purchasing new aquaculture equipment for $500,000, with a forecasted useful life of 10 years, to replace old equipment that could be disposed of at an estimated salvage value of $60,000. If GBEI acquires the new equipment, it could take on a bigger service area that was not previously feasible, thus leading to an annual increase in sales of $200,000. With the improvements in technology built into the equipment, GBEI’s annual operating expenses would be reduced by $100,000. Operation of the new equipment would require GBEI to maintain inventory levels $100,000 higher than usual over the life of the project. The new equipment could be sold at the end of its useful life for $40,000. Assume straight line depreciation. Assume gross margin on incremental revenues is 60%. The cost of capital for this investment is 11.65%. 1. Calculate the NPV, Payback Period, and Profitability Index of the purchase of the new aquaculture equipment.
This alternative involves purchasing new aquaculture equipment for $500,000, with a
1. Calculate the NPV, Payback Period, and Profitability Index of the purchase of the new aquaculture equipment.
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