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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.
Variable Product Cost
Variable product cost includes costs that vary directly with the production volume, such as raw materials and direct labor.
Markup Percentage
The proportion added onto the purchase price of products to encompass operational costs and earnings.
Variable Product Cost
Expenses associated with the manufacturing of a product that fluctuate with the level of production output, including costs for materials and labor directly involved in production.
Contribution Margin
The amount remaining from sales revenue after variable expenses are deducted, which contributes towards covering fixed expenses and generating profit.
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