You are reviewing the purchase of a machine in your subsidiary in Europe that costs 6 million Euros. It will have a 3-year life and a salvage value of 3 million Euros. The cash flows from the machine are as follows: Year 1: + 1,250,000 Euros, Year 2: + 1,500,000 Euros, and Year 3: + 2,000,000 Euros. The current exchange rate is $1.3 Cdn per 1 Euro and the company's discount rate is 12%. If the interest rate is 2.5% in Canada and 2.0% in Europe, what is the NPV of this investment?

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.