18) Bob Cratchit, a new analyst at Scrooge & Marley Inc., has prepared a capital budget for the Tiny Tim project. He is scheduled to present his analysis at a board meeting in one hour. Bob just received an email from his boss, Fred Fezziwig, indicating that the capital budget is missing a critical piece of machinery with a capital cost of $200,000. The machine would be purchased at the outset of the project (Year 0). The machinery is in Class 8 with a depreciation rate of 20%. The machine will be sold for $160,000 at the end of the two-year project. The tax rate is 35% and the weighted average cost of capital is 9%. No other element of the capital budget would be affected. Assume that all cash flows occur at year-end (except for the purchase of equipment).

What is the reduction in NPV associated with the inclusion of the missing machinery? Round your answer to the nearest dollar.

Answer rating: 100% (QA)

Calculate the Reduction in NPV Formulas used 1 2 3 4 Tax rate 5 WACC 6 A Initial cost Depreciation r... View the full answer