Tabletop Ranches, Inc. is considering the purchase of a new helicopter for $325,000. The firm's old helicopter has a book value of $85,000, but can only be sold for $60,000.
The new helicopter will be subject to 25% CCA. It is expected to save $62,000 for 7 years after taxes through reduced fuel and maintenance expenses. Tabletop Ranch is in the 40% tax bracket and has a 12% cost of capital.
Calculate the net present value of the helicopter purchase and state whether or not the firm should buy it.
Definitions:
Traveling By Plane
The act of moving from one place to another distant place by aircraft, commonly used for long-distance travel.
Minimum Value
The lowest value in a given set of data or the lowest point on a function's graph.
Opportunity Cost
Giving up possible rewards from different alternatives by choosing one path.
Attending Class
The act of being present at scheduled educational lessons or seminars.
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