Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have a CCA rate of 20%, an estimated useful life of 10 years and a $30,000 terminal disposal price. This piece of equipment would need a major overhaul at the end of 7 years that is expected to cost $40,000. Also, if this machine is purchased there will be a required increase in working capital of $60,000. This entire amount will be released at the end of the machines useful life. The companys marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $220,000 annually. Optimistic Company requires a 16% after tax rate of return. Based on the above information, calculate the net present value of this option.

Multiple Choice

• $78,334

• $67,263

• $71,792

• $67,439

• None of the above