Q7) A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The moni

[answerhappygod]

Q7 A New Electronic Process Monitor Costs 990 000 This Cost Could Be Depreciated At 30 Per Year Class 10 The Moni 1 (27.71 KiB) Viewed 38 times

Q7 A New Electronic Process Monitor Costs 990 000 This Cost Could Be Depreciated At 30 Per Year Class 10 The Moni 2 (45.65 KiB) Viewed 38 times

Q7) A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worthless in five years. The new monitor would save $460,000 per year before taxes and operating costs. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%. Answer: Cash flow year 0 = Cash flow years 1 through 5 = CF before tax x (1 -T.) = INT 1+0.5r SdT 1 PV tax shield on CCA = X (1+r) d+r PVIFA- 1+r d+r (1 + r)" X 1 = Total Capital Investment: d = CCA tax rate; Tc = Corporate Tax Rate; r = discount rate: Sn = Salvage value in year n; n = number of periods in the project
Q8) Previous problem (@7): A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worthless in five years. The new monitor would save $460,000 per year before taxes and operating costs. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%. Additional information: In the previous question (Q7), suppose the new monitor also requires us to increase net working capital by $47,200 when we buy it. Further suppose that the monitor could actually be worth $100,000 in five years. What is the new NPV? Answer: Cash flow year 0 = Cash flow years 1 through =CF before tax x (1 - T) = Ending cash flow = Salvage value + NWC = INT 1+0.5r SdT 1- PV tax shield on CCA PVIFA (1+r) d+r 1- d+r (1+r)" 1 = Total Capital Investment; d =CCA tax rate: Tc - Corporate Tax Rate: discount rate: S. - Salvage value in year n;n = number of periods in the project r