Question
Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering a purchase of improved equipment for their laboratory at
Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering a purchase of improved equipment for their laboratory at Telegraph Creek. Here is the information they have:
The equipment costs $107,000 and will cost $85,600 per year to run.
It has an economic life of 10 years but can be depreciated over five years by the straight-line method.
It will recover an additional 5,000 ounces of silver per year.
Silver is selling for $24 per ounce. Over the past 5 years, the price of silver has appreciated by 4.5% per year in real terms. Silver is traded in an active, competitive market.
Stikine's marginal tax rate is 34%. Assume U.S. tax law.
Stikine's company cost of capital is 6% in real terms.
The nominal interest rate is 4%.
What is the NPV of the new equipment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started