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OMG Inc. has signed a 2 0 - year contract to produce modems for a local ISP. The production requires a machine that costs $
OMG Inc. has signed a year contract to produce modems for a local ISP. The production requires a
machine that costs $ The CCA rate is and the salvage value is $ The annual revenues
and expenses are expected to be $ and $ respectively. OMG finances the machine with a
$ loan that has subsidized interest rate of OMG is required to repay $ at year and the
remaining balance at year OMGs cost of debt is and the corporate tax rate is
a If the cost of unlevered equity is and the machine is the only asset in the class, calculate the
NPV using the APV approach.
b If the cost of equity is and the asset class remains open with positive UCC, calculate the NPV
using the FTE approach.
c If the weighted average cost of capital is and the machine is the only asset in the asset class,
calculate the NPV of the project using the WACC approach
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