L Corp has an old Cadillac used only for business purposes and would like to replace it with a new Maserati. The old car was bought 10 years ago and at that point in time was expected last for 20 years (if it didnt fall apart). $500 was spent looking for the car and to have it checked. The new car would cost $100,000. The old car cost $40,000 and had been expected to have a salvage value of $0 (zero) in twenty years. The new car is expected to last for 10 years at which point it would be sold for $50,000. The old car could be currently sold for $3,000. L Corp also has other cars for the same purpose in the same asset pool. The cars fall in an asset class with an annual 5% depreciation or CCA rate. Due to its increased speed and presence (customers would be allowed to ride it for a few minutes), L Corp would be able to secure more contracts and increase annual pretax revenues by $30,000. There would be an additional cost of $10,000 incurred annually to maintain the car. We assume there are no changes in working capital required. The weighted average cost of capital is 12% and the tax rate is 40%.

a) Determine the NPV for this opportunity. All working steps must be clearly shown in your calculation of NPV.

b) Input the numbers into the Excel program with Solver (in Moodle course website) and check your NPV calculation. Print out the page which shows the NPV calculated by Excel. Now use Solver to find the IRR. Print out the page which shows the IRR calculated by Solver.