Apothic Inc. is nestled in the beautiful wine country of British Columbia. It is considering the purchase of ten hydraulic ice win press machines for a total price of $125,000. The firm's old press machines have a book value of $85,000, but can only be sold for $60,000.

The new hydraulic press machines are estimmated to attract additional customers and will generate annual revenue of $62,000 for the first 6 years and decreasing to 58,000 for the next 4 years. Annual operating expenses will be 25% of the revenue. Working capital of 30,000 will have to be injected at the start of operation to support the increased sales.

At the end of year 6, a capital upgrade will cost $15,000. At the end of year 10, the press machines can be salvaged for $18,750. Apothic Inc. is in the 40% tax bracket and has 12%cost of capital. The capital cost allowance of the machines is 30%.

MAKE SURE TO USE NEGATIVES FOR NEGATIVE CASHFLOWShat is the present value of salvage of new machine?What is the present value of upgrade?

What is the present value of cost - salvage(first term of CCA equation)?

What is the value for the second term of the CCA equation?What is the value for the third term of the CCA equation?What is the value for the CCA equation?

What is the present value of the purchase price?What is pv of the sale price of the old machine

What is the PV of the working capital invesment?

What is net after tax cashflow for the first 5 years?

What is net after tax cashflow for year 6?What is net after tax cashflow for years7 to 9?

Answer rating: 100% (QA)

Lets break down the calculations step by step 1 Present value of salvage of new machine Salvage value at year 10 18750 Present value formula PV Salvag... View the full answer