Question
A new electronic process monitor costs $990,000. This cost could be depreciated at 30 percent per year (Class 10). The monitor would actually be worth
A new electronic process monitor costs $990,000. This cost could be depreciated at 30 percent per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. The new monitor requires to increase net working capital by $47,200 when we buy it. Assume a tax rate of 40 percent.
a. | If we require a 15 percent return, what is the NPV of the purchase? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
NPV | $ |
b. | Suppose the monitor was assigned a 25 percent CCA rate. All the other facts are the same. Calculate the new NPV. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
NPV | $ |
c. | Will the NPV be larger or smaller? |
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