BERCELO inc. is considering purchasing a new machine that will cost $920,000 plus an additional $15,000 in installation costs. Management estimates that the firm will obtain annual operating cash flows of $220,000 over the economic life of the project. The specifications of this machine indicate an economic life of ten years and management estimates that at the end of the economic life, the machine will have a salvage value of $90,000. This machine is in asset class 9 which has a CCA rate of 20%. The firm requires $45,000 in additional working capital to start up the project and management estimates that the $45,000 will be released at the end of the project. The firm’s required rate of return is 9% and the firm’s tax rate is 35%.

If the asset class is expected to remain open at the end of the project, based on NPV analysis, should the project be undertaken?

Answer rating: 100% (QA)

Finance practice question Net present value NPV C11R100 1 C21R100 2 C31R100 3 C101R100 10 Initial ca... View the full answer