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 percent 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.The firm's marginal tax rate is 38 percent.If the appropriate discount rate is 10 percent,what is the project's NPV?

Question

Quizplus · Accepted Answer

CF₀ = $100,000 CFAT = CFBT*(1 - 38%) CFAT of years 1-5: $18,600,$37,200,$6,200,$31,000,$24,800 11ea8229_3476_279d_bbd8_6d359774ed0c_TB1726_00 11ea8229_3476_279e_bbd8_2b61db82620b_TB1726_00 NPV = -$100,000 + $88,883.31 + $27,204.55 = $16,087.86

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