Bob Cratchit, a new analyst at Scrooge & Marley Inc., has prepared a capital budget for the Tiny Tim project. He is scheduled to present his analysis at a board meeting in one hour. Bob just received an email from his boss, Fred Fezziwig, indicating that the capitalbudget is missing a critical piece of machinery with a capital cost of $100,000. The machine would be purchased at the outset of the project (Year O). The machinery is in Class 8 with a depreciation rate of 20%. The machine will be sold for $75,000 at the end of thetwo-year project. The tax rate is 35% and the weighted average cost of capital is 9%. No other element of the capital budget would be affected. Assume that all cash flows occur at year-end (except for the purchase of equipment). What is the reduction in NPVassociated with the inclusion of the missing machinery? Round your answer to the nearest dollar.

A detailed answer is given above.

Answered: Bob Cratchit, a new analyst at Scrooge…

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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