CAPITAL BUDGETING QUESTION USE THE NET PRESENT VALUE METHOD The Alberta Oil Service Company is considering buying a new machine. The following operating information is provided below: \begin{tabular}{|l|r|r|} \hline COST & $ & 240,000 \\ \hline SALVAGE & $ & 20,000 \\ \hline WORKING CAPITAL & $ & 30,000 \\ \hline YEARLY SAVINGS & $ & 80,000 \\ \hline COST OF CAPITAL & & 14% \\ \hline CCA RATE & & 20% \\ \hline TAX RATE & & 30% \\ \hline LIFE & & 10 \\ \hline \end{tabular} CCA TAX SHIELD= \begin{tabular}{cc} \hline Cdt & (1+.5r) \\ \hline(d+r) & (1+r) \end{tabular} LOSS OF CCA TAX SHIELD FROM= THE NET SALVAGE VALUE 1 What is the cost of the capital budgeting project at time 0 ? 2 What is the yearly savings after tax on the project? 3 What is the present value of the savings for the project? 4 What is the present value of the salvage value of the machine? 5 What is the CCA tax shield from the machine? 6 What is the cost of the lost tax shield from the salvage? 7 What is the present value of the working capital inflow? 8 INDEPENDENT QUESTION: Assume the NPV IS NEGATIVE. What is the decision on the project based on the NPV of the project? [ACCEPT OR REJECT]