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Please do not use Excel to solve this problem, using financial calculator and show steps. 5. CAD Corporation is considering some new equipment whose data
Please do not use Excel to solve this problem, using financial calculator and show steps.
5. CAD Corporation is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional inventories would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's 3-year life. Would this new equipment purchase decision is correct based on the project's NPV? (20 marks) WACC Net investment in fixed assets (depreciable basis) Required inventories Straight-line depreciation rate Annual sales revenues Annual operating costs (excl. depreciation) Expected pre-tax salvage value Tax rate 10.0% $70,000 $30,000 33.333% $75,000 $30,000 $2,000 35.0%Step by Step Solution
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