factory is considering partially automating one of its production processes, details can be found in the summary table below (all dollars are constant and have the value of today) Investment = $1 500 000 Project life = 5 years Salvage value = $500 000 CCA rate = 30% Annual savings = $1 000 000 Annual Expenses (per year): Labour = $200 000, Material = $125 000, Overhead = $75 000 Marginal Tax rate = 40% Real interest rate = 15% A) Ignoring effects of inflation (for part a only), what's the after tax NPW B) If the general inflation rate during the next 5 years is expected to be 6% annually, sales and operating costs are increased accordingly. What would the NPW be due to inflation? C) How did the NPW change and wh
A factory is considering partially automating one of its production processes, details can be found in the summary table below (all dollars are constant and have the value of today)
Investment = $1 500 000
Project life = 5 years
Salvage value = $500 000
CCA rate = 30%
Annual savings = $1 000 000
Annual Expenses (per year): Labour = $200 000, Material = $125 000, Overhead = $75 000
Marginal Tax rate = 40%
Real interest rate = 15%
A) Ignoring effects of inflation (for part a only), what's the after tax NPW
B) If the general inflation rate during the next 5 years is expected to be 6% annually, sales and operating costs are increased accordingly. What would the NPW be due to inflation?
C) How did the NPW change and why?
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