Question
TinyTotsInc. wishes toexpand the company's business bypurchasing newequipment costing $78,000.The CCA rate on the equipment is 23%.In 8 years, the equipment can be soldfor $18,200.When
- TinyTotsInc. wishes toexpand the company's business bypurchasing newequipment costing $78,000.The CCA rate on the equipment is 23%.In 8 years, the equipment can be soldfor $18,200.When this project is over, there will still be other assets in the CCAclass.Thenewequipmentisexpectedtosave$24,000beforetaxesperyearand is expected to increase working capital in the first year by $22,100.This is a one-time increase in working capital and will be recovered at the end of the project.
WhatistheNPVofthisproject?Therelevant discountrateis7.8%andthecorporate tax rate is 27%.Assume that current CCA rules apply.
- $13,503
- $59,840
- $37,740
- $75,266
- Noneofthe above
The Answer is #3 Please provide a Solution with an Explanation.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
