A firm is considering purchasing a new machine, which costs $500,000 and has a six-year life, a CCA rate of 30%, and an expected salvage value of $45,000.The project will generate sales revenue of $200,000 in the first year, which will grow at 5% 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%.What is the project's NPV?

Question

Quizplus · Accepted Answer

The NPV calculation involves determining the present value of cash flows generated by the project, accounting for tax savings from CCA, and subtracting the initial investment. The correct NPV is $12,264.

A Firm Is Considering Purchasing a New Machine, Which Costs