a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $122332.17 Ⓒ b. Suppose the device will be worth $81,000 in salvage (before taxes). How does this change your answer? (Do not round your Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $170855.86

a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $122332.17 Ⓒ b. Suppose the device will be worth $81,000 in salvage (before taxes). How does this change your answer? (Do not round your Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $170855.86

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A proposed cost-saving device has an installed cost of $570,000. It is in Class 8 (CCA rate = 20%) for CCA purposes. It will actually
function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax
rate is 35%.
a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the
problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $
sign in your response.)
Cost savings
$122332.17
b. Suppose the device will be worth $81,000 in salvage (before taxes). How does this change your answer? (Do not round your
Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
Cost savings
170855.86

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Step 3: Part (b) Calculate cost savings to favour the investment when salvage value is given.

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