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Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have a CCA rate of 20%, an estimated useful life of 10 years and a $30,000 terminal disposal price. This piece of equipment would need a major overhaul at the end of 7 years that is expected to cost $40,000. Also, if this machine is purchased there will be a required increase in working capital of $60,000. This entire amount will be released at the end of the machine's useful life. The company's marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $220,000 annually. Optimistic Company requires a 16% after tax rate of return. Based on the above information, calculate the net present value of this option. NOTE: Email Sean a copy of your detailed solution to this question identifying all of the components that you included to come to your answer. If it is not correct, I may be able to find part marks. Multiple Choice O O $78.334 $67,263 $89.447 567439 None of the above

Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have a CCA rate of 20%, an estimated useful life of 10 years and a $30,000 terminal disposal price. This piece of equipment would need a major overhaul at the end of 7 years that is expected to cost $40,000. Also, if this machine is purchased there will be a required increase in working capital of $60,000. This entire amount will be released at the end of the machine's useful life. The company's marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $220,000 annually. Optimistic Company requires a 16% after tax rate of return. Based on the above information, calculate the net present value of this option. NOTE: Email Sean a copy of your detailed solution to this question identifying all of the components that you included to come to your answer. If it is not correct, I may be able to find part marks. Multiple Choice O O $78.334 $67,263 $89.447 567439 None of the above

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have a CCA rate of 20%, an estimated useful life of 10 years and a $30,000 terminal disposal price. This piece of equipment would need a major overhaul at the end of 7 years that is expected to cost $40,000. Also, if this machine is purchased there will be a required increase in working capital of $60,000. This entire amount will be released at the end of the machine's useful life. The company's marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $220,000 annually. Optimistic Company requires a 16% after tax rate of return. Based on the above information, calculate the net present value of this option. NOTE: Email Sean a copy of your detailed solution to this question identifying all of the components that you included to come to your answer. If it is not correct, I may be able to find part marks. Multiple Choice O O $78.334 $67,263 $89.447 567439 None of the above
Transcribed Image Text:Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have a CCA rate of 20%, an estimated useful life of 10 years and a $30,000 terminal disposal price. This piece of equipment would need a major overhaul at the end of 7 years that is expected to cost $40,000. Also, if this machine is purchased there will be a required increase in working capital of $60,000. This entire amount will be released at the end of the machine's useful life. The company's marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $220,000 annually. Optimistic Company requires a 16% after tax rate of return. Based on the above information, calculate the net present value of this option. NOTE: Email Sean a copy of your detailed solution to this question identifying all of the components that you included to come to your answer. If it is not correct, I may be able to find part marks. Multiple Choice O O $78.334 $67,263 $89.447 567439 None of the above
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