What of the three machines ABC Technologies should purchase? ABC Technologies is considering the following three machines
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ABC Technologies is considering the following three machines to make widgets. 1. Machine X costs $1,000,000, has 6 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $400,000 (excluding CCATS) per year. 2. Machine Y costs $2,000,000, has 10 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $600,000 (excluding CCATS) per year. 3. Machine Z costs $3,000,000, has 12 year economic life and a salvage value of $200,000. It will generate before tax cash flow of $790,000 (excluding CCATS) per year Whichever machine ABC purchases, it will keep repurchasing it forever. CCA rate is 30%, the corporate tax rate is 40% and the required rate of return is 15%. ABC Technologies is considering the following three machines to make widgets. 1. Machine X costs $1,000,000, has 6 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $400,000 (excluding CCATS) per year. 2. Machine Y costs $2,000,000, has 10 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $600,000 (excluding CCATS) per year. 3. Machine Z costs $3,000,000, has 12 year economic life and a salvage value of $200,000. It will generate before tax cash flow of $790,000 (excluding CCATS) per year Whichever machine ABC purchases, it will keep repurchasing it forever. CCA rate is 30%, the corporate tax rate is 40% and the required rate of return is 15%.
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Here is the calculation of the NPV for each machine Machine X Initial inv... View the full answer
Related Book For
Calculus For Scientists And Engineers Early Transcendentals
ISBN: 9780321849212
1st Edition
Authors: William L Briggs, Bernard Gillett, Bill L Briggs, Lyle Cochran
Posted Date:
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