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A fast-food establishment is thinking of buying a new cooking grill and refrigeration unit. the costs of these new machines are $12,500 and $9,000, respectively. The installation costs of the new equipment will run about $800. It is estimated that 10% more customers can be served with the new equipment, which would mean an additional annual net cash flow of approximately $4,500. The salvage value of the old grill and refigeration unit estimated to be 1,000. The firm’s cost of capital is 12%. The equipment should last 10 years, at a minimum.
Using the net present value method, should the company purchase the new equipment? Ignore income tax effects.