Suppose a new machine costs $100,000 and will provide nominal operating income of $50,000 in each of the next four years.The machine belongs to asset class 9,which has a CCA rate of 30 percent.The machine is expected to be sold for $25,000 at the end of four years.The real discount rate has been estimated to be 8 percent per year.Expected inflation is 2.5 percent over the next four years.The firm's marginal tax rate is 38%.Assume there are other assets in the asset class when the machine is sold.What is the NPV of the project?

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Quizplus · Accepted Answer

Nominal discount rate = (1 + 8%)*(1 + 2.5%)- 1 = 10.70% 11ea8229_347a_948e_bbd8_a79ebede22e0_TB1726_00 PV(CFAT)= $50,000*(1 - 38%)*PVAF(10.7%,4)= $96,795.10 11ea8229_347a_948f_bbd8_2df0c7fe440a_TB1726_00 NPV = -$100,000 + $21,993.20 + $96,795.10 + $16,647.52 = $35,435.82

Suppose a New Machine Costs $100,000 and Will Provide Nominal