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:

Dysfunctional Mimesis

Involves the problematic imitation or reproduction of behaviors or attitudes that are unhealthy or unproductive, often in a social or interpersonal context.

Emotional Reactivity

The tendency of an individual to experience intense emotional responses to external stimuli, often leading to heightened stress or interpersonal conflict.

Salvador Minuchin

A renowned Argentinian psychiatrist and psychotherapist, notable for his work in developing family therapy and his innovative approach to structural family therapy.

Murray Bowen

An American psychiatrist known for developing Bowen family systems theory, which views the family as an emotional unit and uses systems thinking to describe the complex interactions in the unit.