Question
Tabletop Ranches Inc. is considering the purchase of a new helicopter for $300,000. The firm's old helicopter has a book value of $60,000 but can
Tabletop Ranches Inc. is considering the purchase of a new helicopter for $300,000. The firm's old helicopter has a book value of $60,000 but can be sold today for $30,000. The new helicopter will be subject to a CCA rate of 25 percent. It is expected to save $70,000 per year for 7 years through reduced fuel and maintenance expenses. The company will need to invest $12,000 in spare parts inventory (working capital) when they purchase the helicopter. At the end of the 7 years the company believes it can sell the helicopter for $40,000. Tabletop Ranches has a 12 percent cost of capital and a 30 percent tax rate.
Required:
a. Complete the following table by entering the present value, after-tax, of each of the following cash flows.
Initial Investm ent -300,00 0 Trade In Expens e Savings Salvage CCA Tax Shield Workin g Capital (net of recover y) Net Present Value b. Should Tabletop purchase the helicopter
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