Mont Royal Lighting Corporation is considering investing $100,000 in machinery that would generate operating cash flows of $30,000 in year 1, $60,000 in year 2, $10,000 in year 3, $50,000 in year 4, and $40,000 in year 5.The equipment has a CCA rate of 30% and is expected to have no salvage value at the end of five years.Assume the asset class remains open after the asset is sold and the half-year rule applies in the first year.The firm's marginal tax rate is 38%.If the appropriate discount rate is 10%, what is the project's NPV?

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) of the project can be calculated by discounting the net cash flows (including tax shield benefits from CCA) at the project's discount rate of 10%. Given the information, the correct NPV calculation must account for the diminishing balance method of CCA, the half-year rule in the first year, and the tax implications on the cash flows. The option that closely aligns with these considerations is the correct answer.

Mont Royal Lighting Corporation Is Considering Investing $100,000 in Machinery