Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

URGENT please use a financial calulator Frontac Ltd. is considering the investment of $100,000 in a new machine that will allow it to do research

URGENT please use a financial calulator

Frontac Ltd. is considering the investment of $100,000 in a new machine that will allow it to do research on developing a new microchip for use in video games. The machine will be assigned to CCA Class 8. Depreciation rate is 20%. The firm is considered a Canadian-controlled private corporation eligible for the small business tax deduction. (The tax rate is, therefore, 15 percent.) If the machine is purchased, Frontac expects to be able to develop a new product for the video game market that would be ready for sale about two years after the machine is purchased. This new product is anticipated to provide new revenues of $130,000 per year for the seven years after introduction, and to have associated expenses of $95,000 per year for the first five of those years and $105,000 for the last two. Other development costs associated with the new product in the initial two years are estimated at $18,000 per year. The firms controller estimates its cost of capital at 13 percent and that $0.10 in additional working capital is required for every $1.00 in extra sales. The Working capital will be charged the year when revenues incur. Calculate the NPV. (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Oxford Handbook Of Sovereign Wealth Funds

Authors: Douglas J. Cumming, Geoffrey Wood, Igor Filatotchev, Juliane Reinecke

1st Edition

0198754809, 978-0198754800

More Books

Students also viewed these Finance questions