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Canadian Wilderness Company (CWC) just bought a machine that is expected to generate $35,000 in operating income before depreciation expenses each year. The machine, which
Canadian Wilderness Company (CWC) just bought a machine that is expected to generate $35,000 in operating income before depreciation expenses each year. The machine, which has a depreciable base equal to $60,000, falls into the MACRS 3-year class, 33%, 45%, 15%, 7%, repectively.
a. Prepare a statement of cash flows for CWC. Use the table below as a guide.
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Operating Income | ||||
| Less: Depreciation | ||||
| Net Operating Income | ||||
| Less: Taxes (40%) | ||||
| After-Tax NOI | ||||
| Add: Depreciation | ||||
| Operating Cash Flow |
b. The new machine puchased by CWC cost the company $80,000. What is the NPV and IRR of this project, if the CWC's required return in 10%? Was it a good decision?
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