Tabletop Ranches,Inc.is considering the purchase of a new helicopter for $325,000.The firm's old helicopter has a book value of $85,000,but can only be sold for $60,000.
The new helicopter will be subject to 25% CCA.It is expected to save $62,000 for 7 years after taxes through reduced fuel and maintenance expenses.Tabletop Ranch is in the 40% tax bracket and has a 12% cost of capital.
Calculate the net present value of the helicopter purchase and state whether or not the firm should buy it.

Question

Quizplus · Accepted Answer

The Answer of Tabletop Ranches,Inc.is considering the purchase of a new helicopter for $325,000.The firm's old helicopter has a book value of $85,000,but can only be sold for $60,000.
The new helicopter will be subject to 25% CCA.It is expected to save $62,000 for 7 years after taxes through reduced fuel and maintenance expenses.Tabletop Ranch is in the 40% tax bracket and has a 12% cost of capital.
Calculate the net present value of the helicopter purchase and state whether or not the firm should buy it.