Hydro-Qubec is considering introducing a new power generator. The initial cost is $850,000, and it will...

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Hydro-Québec is considering introducing a new power generator. The initial cost is $850,000, and it will have a life of 12 years. The power generator will be depreciated with a CCA rate of 20% and it is expected to be sold at $200,000 at the end of the 12th year. Sales revenues from the new power generator are expected to be $80,000 per year. Variable costs will be 15% of sales revenue and fixed costs are expected to be $16,000 per year. The firm also needs to invest $20,000 in net working capital at the beginning of the project, which will be recovered when the project ends. $10,000 has been spent in the last month projecting the profitability of the new power generator. Assume that the tax rate is 40% and the discount rate is 10%. Compute the NPV of the project and decide if Hydro-Québec should accept or reject the project. Please show all your work and round to 0 decimal places. Hydro-Québec is considering introducing a new power generator. The initial cost is $850,000, and it will have a life of 12 years. The power generator will be depreciated with a CCA rate of 20% and it is expected to be sold at $200,000 at the end of the 12th year. Sales revenues from the new power generator are expected to be $80,000 per year. Variable costs will be 15% of sales revenue and fixed costs are expected to be $16,000 per year. The firm also needs to invest $20,000 in net working capital at the beginning of the project, which will be recovered when the project ends. $10,000 has been spent in the last month projecting the profitability of the new power generator. Assume that the tax rate is 40% and the discount rate is 10%. Compute the NPV of the project and decide if Hydro-Québec should accept or reject the project. Please show all your work and round to 0 decimal places.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the project we need to consider the initial cost annual cash flows and the salvage value at the end of the p... View the full answer