A new electronic process monitor costs $7,000,000. This cost could be depreciated at 30% per year (CCA Class 10). The monitor could be sold for $1,428,595 at the end of five years. The new monitor would save the firm $2,400,000 before taxes in annual operating costs for the five years. There would be no impact on net working capital. The firm’s weighted average cost of capital is 15% and the corporate tax rate is 40%. What would be the NPV of purchasing this system?
A new electronic process monitor costs $7,000,000. This cost could be depreciated at 30% per year (CCA Class 10). The monitor could be sold for $1,428,595 at the end of five years. The new monitor would save the firm $2,400,000 before taxes in annual operating costs for the five years. There would be no impact on net working capital. The firm’s weighted average cost of capital is 15% and the corporate tax rate is 40%. What would be the NPV of purchasing this system?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A new electronic
year (CCA Class 10). The monitor could be sold for $1,428,595 at the end of five years. The new
monitor would save the firm $2,400,000 before taxes in annual operating costs for the five years.
There would be no impact on net working capital. The firm’s weighted average cost of capital is
15% and the corporate tax rate is 40%. What would be the NPV of purchasing this system?
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