QUESTION $4$:

XYZ Manufacturing would like to purchase a machine for its current operations. XYZ would like to

know the maximum price it should pay for that machine. That is$,$ how high must the price be for the

machine to have an NPV of zero?

You are given the following facts:

$1.$ The new machine will replace the existing machine that has a current market value of $$30,000.$

$2.$ New machine would reduce before tax operating cost by $$15,000$ per year for $10$ years. These

savings in cost would occur at year$-$end.

$3.$ The old machine is now $5$ year old. It is expected to last for another $10$ years, and will have no

resale value at the end of those $10$ years. It was purchased for $$60,000$ and is being depreciated

at a CCA rate of $20\%.$

$4.$ The new machine will also be depreciated at a CCA rate of $20\%.$ XYZ expects to be able to sell

the machine for $$10,000$ at the end of $10$ years. At that time XYZ plans to reinvest in a new

machine in the same CCA pool.

$5.$ The appropriate discount rate is $12\%,$ and the tax rate is $40\%.$

$6.$ Assume asset pool remains open