A firm is considering purchasing a new machine,which costs $500,000 and has a six-year life,a CCA rate of 30 percent,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 percent per year in the subsequent years.Variable costs will be $80,000 for the first year,which will grow at 7 percent per year.The firm's marginal tax rate is 35 percent and required return is 10 percent.What is the project's NPV?

Question

Quizplus · Accepted Answer

11ea8229_347a_e2b4_bbd8_a10105a74d2c_TB1726_00 11ea8229_347b_09c5_bbd8_357b6d2248ce_TB1726_00 PV(RevenueAT)= 11ea8229_347b_09c6_bbd8_9d727f1207a7_TB1726_11 PV(CostAT)= 11ea8229_347b_09c7_bbd8_1b4022b5b04c_TB1726_11 PV(CFAT)= $633,232.46 - $264,986.52 = $368,245.94
NPV = -$500,000 + $118,616.24 + $25,401.33 + $368,245.94 = $12,263.51

A Firm Is Considering Purchasing a New Machine,which Costs $500,000