Wylie Contracting Inc. (WCI) is a contracting company that lays oil pipeline infrastructure. WCI is considering purchasing a piece of excavating equipment worth $9,000,000. The machine would generate a net $400,000 yearly pre-tax cash flows. The machine would be depreciated over the course of 20 years, at which time it is predicted to have a disposal value of $3,000,000.
Management plans to depreciate the full value of the asset (not deducting the anticipated disposal value in the calculation), and will take a full year of depreciation the first year.WCI's tax rate is 25%, and the discount rate is 12%.
What is the Net Present Value of the proposed purchase? Should the company invest in the equipment?

Question

Wylie Contracting Inc. (WCI) is a contracting company that lays oil pipeline infrastructure. WCI is considering purchasing a piece of excavating equipment worth $9,000,000. The machine would generate a net $400,000 yearly pre-tax cash flows. The machine would be depreciated over the course of 20 years, at which time it is predicted to have a disposal value of $3,000,000. 
Management plans to depreciate the full value of the asset (not deducting the anticipated disposal value in the calculation), and will take a full year of depreciation the first year.WCI's tax rate is 25%, and the discount rate is 12%.
What is the Net Present Value of the proposed purchase? Should the company invest in the equipment?

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The Answer of Wylie Contracting Inc. (WCI) is a contracting company that lays oil pipeline infrastructure. WCI is considering purchasing a piece of excavating equipment worth $9,000,000. The machine would generate a net $400,000 yearly pre-tax cash flows. The machine would be depreciated over the course of 20 years, at which time it is predicted to have a disposal value of $3,000,000. 
Management plans to depreciate the full value of the asset (not deducting the anticipated disposal value in the calculation), and will take a full year of depreciation the first year.WCI's tax rate is 25%, and the discount rate is 12%.
What is the Net Present Value of the proposed purchase? Should the company invest in the equipment?