A UCW student painter is considering the purchase of a new air compressor and paint gun to replace an old paint sprayer. (Both items belong to Class 9 and have a 25% CCA rate). These two new items cost $16,000 and have a useful life of four years, at which time they can be sold for $1,600. The old paint sprayer can be sold for $500 and could be scrapped for $250 in four years. The student believes that operating revenues will increase annually by $10,000. Should the purchase be made? The tax rate is 22% and the required rate of return is 15%. Show your steps.

A UCW student painter is considering the purchase of a new air compressor and paint gun to replace an old paint sprayer. (Both items belong to Class 9 and have a 25% CCA rate). These two new items cost $16,000 and have a useful life of four years, at which time they can be sold for $1,600. The old paint sprayer can be sold for $500 and could be scrapped for $250 in four years. The student believes that operating revenues will increase annually by $10,000. Should the purchase be made? The tax rate is 22% and the required rate of return is 15%. Show your steps.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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