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1) A firm is taking into consideration of replacing its aging production equipment. Firm has the cost of capital of= 9.5%. Its marginal tax rate is= 40%. New equipment will cost= $1.2M inclusive of shipping and installation. It will have the expected life of five years. Revenues are expected to rise $600K the first year and $50K a year thereafter. Company utilizes straight line depreciation and no salvage value is supposed. Old equipment is completely depreciated and can be sold today for $50K. Expenses will rise $96K first year and increase $25K each year thereafter. Week long training seminar will be held in Toronto and will cost= $10K. Net working capital will rise= $40K. We think we can sell new equipment for= $75K in 5 years.

Determine the net initial investment, annual cash flow, and terminal value?

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