Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1 million.

Question:

Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 to run, will save the firm $125,000 in labour costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. Ilana has many other assets in this asset class. The lathe is expected to have a 10-year life with a salvage value of $100,000. The actual market value of the lathe at that time will also be $ 100,000. The discount rate is 10% and the corporate tax rate is 35%. What is the NPV of buying the new lathe?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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