Questions 14.

PCT Inc. is considering a 7-year project which requires the purchase of a $340,600 machine. This machine is the only asset in the asset class (CCA rate of 25%) and will be sold for $89,900 when the project ends. The project is expected to generate cash flows before tax of $209,600 per year for 7 years. The project has the same risk as the existing assets of the firm and the firm's target debt equity ratio is 0.55. The weighted average cost of capital is 14.8%. The corporate tax rate is 32%. PCT's normal borrowing cost is 7.8%. Loyal Bank offers a special loan of $162,000 at 5.2% but charges 2% flotation cost and requires repaying 2/5 of the loan at the end of year 4. PCT pays the flotation cost with its cash on hand. Using the adjusted present value method, calculate the NPV of the project.