Exar Construction Ltd is contemplating the purchase of new equipment. The equipment would cost $40,000, have an expected life of 8 years, and a zero terminal salvage value. The equipment would be Class 8 (20% CCA rate), and would generate $125,000 additional revenue annually, and Exar would incur additional annual expenses of $115,000 for labour and material. The company's marginal tax rate is 20%, and the required after-tax rate of return is 14%.
Additional data (for interest rate of 14%, 8 periods):
Required:
Calculate the net after-tax present value, and determine whether Exar should purchase the equipment.

Question

Exar Construction Ltd is contemplating the purchase of new equipment. The equipment would cost $40,000, have an expected life of 8 years, and a zero terminal salvage value. The equipment would be Class 8 (20% CCA rate), and would generate $125,000 additional revenue annually, and Exar would incur additional annual expenses of $115,000 for labour and material. The company's marginal tax rate is 20%, and the required after-tax rate of return is 14%.
Additional data (for interest rate of 14%, 8 periods):
  Required:
Calculate the net after-tax present value, and determine whether Exar should purchase the equipment.

Quizplus · Accepted Answer

The Answer of Exar Construction Ltd is contemplating the purchase of new equipment. The equipment would cost $40,000, have an expected life of 8 years, and a zero terminal salvage value. The equipment would be Class 8 (20% CCA rate), and would generate $125,000 additional revenue annually, and Exar would incur additional annual expenses of $115,000 for labour and material. The company's marginal tax rate is 20%, and the required after-tax rate of return is 14%.
Additional data (for interest rate of 14%, 8 periods):
  Required:
Calculate the net after-tax present value, and determine whether Exar should purchase the equipment.

Exar Construction Ltd Is Contemplating the Purchase of New Equipment