A high-tech machine that produces watch bands costs $849,000. This cost could be depreciated at
30% per year (CCA Class 10). The machine would be worth $175,000 in five years. There are no
capital gains to worry about. The new machine would save the firm $262,000 per year before taxes
in operating costs. There is no impact on net working capital. The firm's WACC is 15% and the
corporate tax rate is 40%.
3. What is the total present value of the after-tax operating cost savings that the machine will
bring?
A) $786,148
B) $878,265
C) $606,003
D) $611,453
E) $526,959

 

4. Pretend that your answer to the previous question is $600,000. What would be the NPV of
purchasing this system?
A) $37,892
B) $26,439
C) $304,704
D) $32,442
E) $71,124
 

provide the details work and financial calculation as well