Problem 12 - 37 Albert 1 . Stein Lid . Is considering the investment of $75,000 in a new machine that will allow it to do research on developing a new microchip for use in video games . The machine will be assigned to CCA Class & . The firm is considered a Canadian - controlled private corporation eligible for the small business tax deduction . ( The tax rate is , therefore , 15 percent . ) A 20 percent ITC is available . It the machine is purchased . Stein expects to be able to develop a new product for the video game* market that would be ready for sale about two years after the machine is purchased . This new product is anticipated to provide new revenues of $121, 000 per year for the seven years after introduction , and 10 have associated expenses of $90, 000 per year for the First Five of those years and $105,000 for the last two . Other development costs associated with the new product in the Initial two years are estimated at $17. 500 per year . The firm's controller estimates its cost of capital at 13 percent and that $0. 10 in additional working capital is required for every $1.00 in extra sales . Calculate the NPV. ( Negative answer should be indicated by a minus sign . Do not round the intermediate . Round the final answer to the nearest whole dollar . ) NPV -$. 543 - 0.14^ Should Albert 1. Stein Lid . purchase the new machine ? NO Explanation ." 17 = 9 T = 1546 1 = 1346 0 = 2046 ( class &) ITC = 2090Expected Cash Aftertax Cash Present Value Year Event Flow Flow |40) 1346 Investment $ 1 75, 000 ) $ 175, 000) 1 ITC 0. 20 ( 575, 000 ) = 15,000 13, 274 1 - 21 Costs ( 17, 500 ) ( 14, 875 ) ( 24, 8:13) 2 Working capital 0. 10 ( 121 , 000 ) = ( 12, 100) (9, 475 ) 3 - 9 Revenues 121, 000 102. 850 154. 865 356, 226 3 - 7 Expenses (90, 000 ) ( 76.50,0 ) |269, 068) ( 210, 720 ) 8 - 9 Expenses ( 105, 000 ) ( 89. 250) (148, 878) ( 63, 28.2 ) WE recovery 12. 100 4. 028 6 O CCAPOO! PV / CCA ) =\\ CPV - Spy (_aTe | | 1 + 05#| \\ 1 + T -\\ $75,00 0 - 0| | 0.20 . 015\\ 10.13 + 020 1\\- 1 05.0 13 \\ 1+ 0.13 = [$75, 0001 (10. 090909 ) ( 0.94247 78 ) = 6, 426 ITC from CCA pool 1 1 0.20 * 0.15 \\ PV ( CCA ) =\\ - ITC PV\\ ( a T c ) = 1 - $15, 0001 / 013 + 0.20| [ - $15, 0001 (10. 090909 ) = ($1, 364) = ( 1, 206 ) NPV = ($4, 543 ) Albert 1 . Stein should not purchase the new machine