Use the following information to answer the question(s)below.
(Include the MACRS Table from the Appendix. )
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000.These tractors are expected to generate EBITDA of $250,000 for each of the next three years.Casa Grande Farms has a 21% tax rate and has a cost of capital of 10%.
-Assuming that Casa Grande Farms depreciates these tractors straight line over the three-year life,then the NPV of buying the tractors is closest to:
A)$45,156.
B)$36,225.
C)$81,715.
D)$513,235.

Question

Quizplus · Accepted Answer

The NPV is closest to $45,156. This is calculated as follows:NPV = -540,000 + (250,000 * (1 - 0.21) * (1/(1+0.1)^1) + (250,000 * (1 - 0.21) * (1/(1+0.1)^2) + (250,000 * (1 - 0.21) * (1/(1+0.1)^3)= -540,000 + 198,350 + 179,413 + 162,739= $45,156

Use the Following Information to Answer the Question(s)below