Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bob Cratchit, a new analyst at Scrooge & Marley Inc., has prepared a capital budget for the Tiny Tim project. He is scheduled to present

Bob Cratchit, a new analyst at Scrooge & Marley Inc., has prepared a capital budget for the Tiny Tim project. He is scheduled to present his analysis at a board meeting in one hour. Bob just received an email from his boss, Fred Fezziwig, indicating that the capital budget is missing a critical piece of machinery with a capital cost of $100,000. The machine would be purchased at the outset of the project (Year 0). The machinery is in Class 8 with a depreciation rate of 20%. The machine will be sold for $75,000 at the end of the two-year project. The tax rate is 35% and the weighted average cost of capital is 9%. No other element of the capital budget would be affected. Assume that all cash flows occur at year-end (except for the purchase of equipment). What is the reduction in NPV associated with the inclusion of the missing machinery? Round your answer to the nearest dollar.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Institutions And Markets

Authors: Jeff Madura

10th International Edition

0538482176, 9780538482172

More Books

Students also viewed these Finance questions

Question

Provide a definition of a shareholder rights plan.

Answered: 1 week ago