Toronto Skaters is considering the purchase of a new computer system for $150,000.The asset has an economic life of four years,a CCA rate of 45 percent,and expected salvage value of $10,000.The project also requires an investment in net working capital of $7,500,which will be recovered at the end of the project.The project is expected to generate after-tax operating income of $80,000 per year.Assume the asset class remains open after the asset is sold.The firm's cost of capital is 18 percent and marginal tax rate is 40 percent.What is the NPV of the project?

Question

Quizplus · Accepted Answer

CF₀ = $150,000 + $7,500 = $157,500 PV(CFAT)= $80,000*PVAF(18%,4)= $215,204.94 11ea8229_3476_008c_bbd8_9b18ba1e7852_TB1726_00 PV(ECF)=(10,000+7,500)/1.18⁴=$9,026.31 NPV = -$157,500 + $215,204.94 + $38,114.70 + $9,026.31 = $104,845.95

Toronto Skaters Is Considering the Purchase of a New Computer