Golden Corporation is considering the purchase of new equipment costing $200,000. The expected life of the equipment is 10 years. It is expected that the new equipment can generate an increase in net income of $35,000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the economy. $\begin{array}{lcr}
\text { Aftertax }&\text { Aftertax Probabilities}&\text { Net Income}\
\text { Recession } & .3 & (\$ 15,000) \
\text { Normal } & .5 & 25,000 \
\text { Boom } & .2 & 35,000
\end{array}$ The equipment can be amortized using straight-line amortization for tax purposes. Golden's cost of capital is 14%. What is the expected NPV? Should they purchase the new equipment?

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The Answer of Golden Corporation is considering the purchase of new equipment costing $200,000. The expected life of the equipment is 10 years. It is expected that the new equipment can generate an increase in net income of $35,000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the economy. $\begin{array}{lcr}
\text { Aftertax }&\text { Aftertax Probabilities}&\text { Net Income}\
\text { Recession } & .3 & (\$ 15,000) \
\text { Normal } & .5 & 25,000 \
\text { Boom } & .2 & 35,000
\end{array}$ The equipment can be amortized using straight-line amortization for tax purposes. Golden's cost of capital is 14%. What is the expected NPV? Should they purchase the new equipment?

Golden Corporation Is Considering the Purchase of New Equipment Costing