Question

Norris Property Management has been offered a six-year contract to provide grounds maintenance for various condominium corporations. To accept the contract, the company would have to purchase several pieces of equipment for both summer and winter grounds maintenance at a total cost of $280,000. Other data relating to the contract follow: Net annual cash receipts (before taxes)
From the contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $81,000
Cost of overhauling and rebuilding the
Mechanical equipment in four years. . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,000
Salvage value of the equipment at
Termination of the contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
If the contract is accepted, several old, fully depreciated pieces of equipment will be sold at a total price of $22,500. These funds will be used to help purchase the new equipment. For tax purposes, the company computes CCA deductions using the maximum rate of 20%. The company requires an 11% after-tax return on all equipment purchases. The tax rate is 30%.
Required:
Compute the net present value of this investment opportunity. Round all dollar amounts to the nearest whole dollar. Would you recommend that the contract be accepted?


$1.99
Sales0
Views27
Comments0
  • CreatedJuly 08, 2015
  • Files Included
Post your question
5000