A Textile Company Invests $12 Million in an Open-End Spinning

question 11

Multiple Choice

A textile company invests $12 million in an open-end spinning machine.The machine belongs to asset class 43 and has a capital cost allowance (CCA) rate of 30%.It is expected that the new machine will increase revenues by $9 million per year with production and support costs of $0.5 million per year.If the company sold it immediately after the end of year 3 for $8 million,what would be the net present value (NPV) of owning the asset,given a tax rate of 40%,and a cost of capital of 12%?

• A)$7,561,553
• B)$5,231,801
• C)$1,867,311
• D)$249,339
• E)-$152,244

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