Question
Celtic Inc. is considering a 16 - year project that will generate before tax cash flow of $18,000 per year for 16 years. The project
Celtic Inc. is considering a 16 - year project that will generate before tax cash flow of $18,000 per year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6% interest rate to purchase the machine . Celtic is required to repay $10,000 at year 4 and the remaining balance at year 16. The corporate tax rate is 30%. (b) If the cost of equity is 14% and the asset class remains open with a positive UCC after the project ends, calculate the NPV of the project using the FTE approach. (c) If the weighted average cost of capital is 11% and t he machine is the only asset in the asset class, calculate the NPV of the project using the WACC approach
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
15th edition
77861612, 1259194078, 978-0077861612, 978-1259194078
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