A Firm Is Considering Purchasing a New Machine, Which Costs

question 54

Essay

A firm is considering purchasing a new machine, which costs $600,000 and has a six-year life, a CCA rate of 25%, and an expected salvage value of $40,000.The asset class will remain open and the half-year rule will apply in the first year.The project will generate sales revenue of $200,000 in the first year, which will grow at 6% per year in the subsequent years.Variable costs will be $80,000 for the first year, which will grow at 7% per year.The firm's marginal tax rate is 35% and required return is 10%.
a)Calculate the present value of the Tax Shield from CCA.
b)Calculate the present value of ending cash flow (ECF).
c)Calculate the present value of after-tax cost and revenue.
d)Calculate the NPV.
e)Should the project be accepted? Why or why not?

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Definitions:

External Stimuli

Environmental factors or influences that can elicit a physiological or psychological response from an individual.

Optimal

The best or most favorable condition, level, or amount of something for a particular situation or purpose.

Sleep

A natural and periodic state of rest during which consciousness of the world is suspended.

William James

A pioneering American psychologist and philosopher who made significant contributions to the fields of psychology, educational psychology, philosophy, and pragmatism.