Question
Problem Three (10 marks): Tetley Company is considering acquiring a new machine. The machine would cost $120,000 and it would cost another $30,000 to modify
Problem Three (10 marks):
Tetley Company is considering acquiring a new machine. The machine would cost $120,000 and
it would cost another $30,000 to modify the machine and get it installed and ready for
operations.
The machine falls into class 8 with a 20% CCA rate and it would be sold after 3 years for
$50,000. The machine would require an immediate increase of $8,000 in operating net working
capital. The balance of operating net working capital would remain unchanged during the project
and be recovered after 3 years. The machine would have no effect on revenues, however the
machine is expected to save the company $62,000 per year in before-tax operating costs.
The companys tax rate is 30%. The project has a required rate of return of 12% per year
compounded annually.
What is the NPV of the project?
Please show me how this question was done with FULL excel formulas. The profs answer was $7,468.10. However I don't know how she got to it.
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