Toronto Skaters Is Considering the Purchase of a New Computer

question 9

Multiple Choice

Toronto Skaters is considering the purchase of a new computer system for $150,000.The asset has an economic life of four years, a CCA rate of 45%, and expected salvage value of $10,000.The project also requires an investment in net working capital of $7,500, which will be recovered at the end of the project.The project is expected to generate after-tax operating income of $80,000 per year.Assume the asset class remains open after the asset is sold and the half-year rule applies in the first year.The firm's cost of capital is 18% and marginal tax rate is 40%.What is the NPV of the project?

• A)$104,845.95
• B)$18,763.97
• C)$105,330.16
• D)$108,477.53

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Definitions:

East India Company

A historic British trading company, formed in the 17th century, which played a major role in the economic and political control of India until the mid-19th century.

Monopoly

An economic condition in which a single company or entity has exclusive control over a particular market, lacking competition.

Export

The act of sending goods or services from one country to another for the purpose of trade.

John Locke

John Locke was a 17th-century English philosopher and political theorist, known for his contributions to liberal political thought and his influence on the concepts of natural rights and government by consent.