Question: please solve this asap Defence Electronics Inc. is considering the purchase of a new machine for $325,000 The firm's old machine has a book value


Defence Electronics Inc. is considering the purchase of a new machine for $325,000 The firm's old machine has a book value of $50,000 but can be sold today for $20,000. The new machine will be subject to a CCA rate of 25 percent. It is expected to save an annual cash flow of $62,000 per year for 7 years through reduced fuel and maintenance expenses. The company will need to invest $10,000 in spare parts inventory (working capital) when they purchase the machine. At the end of the 7 years the company believes it can sell the machine for $40,000. Defence Electronics Inc. has a 12 percent cost of capital and a 40 percent tax rate. 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. Present Value, after tax $ (325,000) 1 Description Initial investment Trade in Expense savings Salvage CCA tax shield Working capital (net of recovery) Net Present Value [1] B. Should Defence Electronics Inc. purchase the machine? Write your answer in the following space
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
