Question
Assume everything is given in n=0, CONSTANT dollars unless otherwise stated : Your company signed a contract to remove soil from government-owned property. This task
Assume everything is given in n=0, CONSTANT dollars unless otherwise stated:
Your company signed a contract to remove soil from government-owned property. This task has to be completed in three years, and it requires a specific bulldozer to dig and load the soil onto a transportation vehicle. You are planning to purchase a special ripper-bulldozer for $100,000. The maintaining costs of the bulldozer will be $6,000 per year in each of the next three years. This machine will provide $30,000 cost savings. The profits will be taxed at a rate of 40%. Assume that this asset falls into specific CCA Class with rate = 20% for tax purposes (the 50% rule applies). You estimate that the constant-dollar market (re-sale) value of the bulldozer, which is $100,000 now, will fall by 10% annually. Moreover, your need to have a working capital of $10,000 to be maintained in purchasing power over the lifetime of the project, and this amount can be recovered at the time of the projects completion. The general inflation rate is 8% per year, and inflation-free interest rate, i is 5%.
Using the information above, find the equivalent net present worth in constant dollars.
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