Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please fill out the graph below to answer Excelsior Pulp and Paper Limited (EPP) wants to expand its operations. It is considering the purchase of

please fill out the graph below to answer image text in transcribed
image text in transcribed
image text in transcribed
Excelsior Pulp and Paper Limited (EPP) wants to expand its operations. It is considering the purchase of mutching and pressing machine for its new line of paper worth $520,000. The company estimates that the equipment will enable them to increase revenues by $525,000 per year for the next (5) five years, which is also the useful life of the equipment. Variable expenses related to the pressing machine are estimated to be $250,000 per year and fixed expenses associated with the project are projected to be $25,000 per year. The new machine is much bigger in size. EPP intends to install the new machine in an existing facility that the company is leasing out for $20,000 per year. It means EPP will start losing that leasing revenue ($20,000 per year for 5 years) once the project starts. At the end of its useful life, management believes the mulching and pressing machine can be sold (salvage value) for $20,000. EPP will require $17,500 of net working capital for this project which will be recovered at the end of the project. The company uses a discount rate of 10% for projects of similar risk, and their marginal tax rate is 30% The mulching and pressing equipment has a capital cost allowance (CCA) or depreciation rate of 20% (straight-line depreciation). as a capting Use the net present value (NPV) method to evaluate the project. Should the company accept or reject the project? You must show your work for full marks. (10 marks) Note: Once you click in the table below, you can drag the dotted triangle at the bottom right corner of the text editor window to make it bigger. If you accidentally delete the below table, you can add a new one using the rich-text editor, or try to make your answer as clear as possible using paragraphs and spaces. Year Increase in revenue Net income before tax Tax @ 30% Net income after tax 1 2 before tax Tax @ 30% Net income after tax Add: Depreciation Cash flow after tax Free Cash Flow NPV @ 10% ** FER +0 RA fo

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions