bletop Ranches Inc. is considering the purchase of a new helicopter for $375,000. The firm's old helicopter
Question:
bletop Ranches Inc. is considering the purchase of a new helicopter for $375,000. The firm's old helicopter has a book value of $70,000 but can be sold today for $40,000. The new helicopter will be subject to a CCA rate of 25 percent. It is expected to save $62,000 per year for 8 years through reduced fuel and maintenance expenses. The company will need to invest $12,000 in spare parts inventory (working capital) when they purchase the helicopter. At the end of the 8 years the company believes it can sell the helicopter for $20,000. Tabletop Ranches has a 12 percent cost of capital and a 30 percent tax rate.
Required:
a. Complete the following table by entering the present value, after-tax, of each of the following cash flows.
- Enter all cash flows net of tax, where applicable.
- Round all cash flow numbers to zero decimal places.
- Enter cash outflows as negative numbers.
DescriptionInitial Investment$ -375,000Trade InExpense SavingsSalvageCCA Tax ShieldWorking Capital (net of recovery)Net Present Value
b. Should Tabletop purchase the helicopter?
(Click to select)
Yes
No