ABC Ltd is considering a new project with a 5-year lifespan that will likely generate earnings before interest & tax (EBIT) of $20,000 per year. The project requires an initial investment of $100,000 in equipment, which will be depreciated based on the straight-line method with no residual values at the end (year 5). The operation will require additional investment in working capital of $20 000, which will be recovered at the end of the project (year 5). The interest expense will be $10,000 per year. Please evaluate this new project with the NPV method if the tax rate is 35% and the cost of capital is 15%.
