Question
SafteFirst has moved into new a new office quarters and wants to replace its office equipment (Class 8, CCA rate of 20%). The existing equipment
SafteFirst has moved into new a new office quarters and wants to replace its office equipment (Class 8, CCA rate of 20%). The existing equipment can be sold today for $40,000. In another five years it will be worthless (i.e., no resale value). The new equipment costs $250,000, has a five-year life and a resale value in five years of $47,000. The firms tax rate is 45% and its WACC is 12%. Due to increased worker productivity and morale, the estimated benefits of the project, in cash flow terms, are $35,750 per year. Should the equipment be replaced?
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