You, as the CFO of Windsor Co., are considering an investment of $420,000 in a machine with
Question:
You, as the CFO of Windsor Co., are considering an investment of $420,000 in a machine with a CCA rate of 20% and a seven-year economic life. The appropriate discount rate is 13%, and the corporate tax rate for the company is 35%. Assume all revenues and expenses, which are presented below, are received and paid in cash. Assets will remain in the CCA class after the project ends. Pessimistic Expected Optimistic Unit sales 23,000 25,000 27,000 Price ($) 38 40 42 Variable costs per unit ($) 21 20 19 Fixed costs per year ($) 320,000 300,000 280,000 (a) Calculate the NPV of project in each of the above scenarios (b) If each scenario is equally likely, is the machine a worthwhile investment?
Business Law The Ethical Global and E-Commerce Environment
ISBN: 978-0071317658
15th edition
Authors: Jane Mallor, James Barnes, Thomas Bowers, Arlen Langvardt