You are a Financial Analyst with Bloom Lake Railway Corporation. The management of the company is....

 

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You are a Financial Analyst with Bloom Lake Railway Corporation. The management of the company is. considering upgrading the company's station equipment to meet increased demand and lower operating costs as the new station equipment is more energy efficient. You are tasked to perform analysis for the company's upgrading plan. Below is the key information needed for The old station equipment was purchased four years ago at a capital cost of $240,000. When purchased, the old equipment was expected to last ten years with a salvage value of $28,000. New station equipment will cost $365,000, including installation costs. The new equipment is expected to last six years along with a salvage value of $107,000. The old station equipment could be sold for $110,000 at present. Both the old and new equipment fall into CCA asset class 8 and they follow the CRA requirement of using the declining balance method at a CCA rate of 20 percent. For simplicity, changes in net working capital will be ignored. The railroad's weighted average cost of capital is 14 percent taking into account all opportunity costs. The corporate tax rate is 37 percent. The projections for annual pre-tax revenues and annual pre-tax costs with the new station equipment are: Lower Bound Annual Pre-tax Revenues Annual Pre-tax Cost $ Base Case Upper Bound 197,430.00 $ 87,430.00 $ 216,723.00 $ 105,786.00 $ 135,786.00 46,723.00 Required: 1) Under which scenario(s) of base-case, best-case or worst-case would you recommend upgrading the railroad company's station equipment on the basis of NPV? (13 marks) 2) Find the IRR for the base-case using goal-seek. For this part (of your answer only) take a print of the calculation of base-case NPV and another print when goal-seek finds the IRR. (7 marks) You are a Financial Analyst with Bloom Lake Railway Corporation. The management of the company is. considering upgrading the company's station equipment to meet increased demand and lower operating costs as the new station equipment is more energy efficient. You are tasked to perform analysis for the company's upgrading plan. Below is the key information needed for The old station equipment was purchased four years ago at a capital cost of $240,000. When purchased, the old equipment was expected to last ten years with a salvage value of $28,000. New station equipment will cost $365,000, including installation costs. The new equipment is expected to last six years along with a salvage value of $107,000. The old station equipment could be sold for $110,000 at present. Both the old and new equipment fall into CCA asset class 8 and they follow the CRA requirement of using the declining balance method at a CCA rate of 20 percent. For simplicity, changes in net working capital will be ignored. The railroad's weighted average cost of capital is 14 percent taking into account all opportunity costs. The corporate tax rate is 37 percent. The projections for annual pre-tax revenues and annual pre-tax costs with the new station equipment are: Lower Bound Annual Pre-tax Revenues Annual Pre-tax Cost $ Base Case Upper Bound 197,430.00 $ 87,430.00 $ 216,723.00 $ 105,786.00 $ 135,786.00 46,723.00 Required: 1) Under which scenario(s) of base-case, best-case or worst-case would you recommend upgrading the railroad company's station equipment on the basis of NPV? (13 marks) 2) Find the IRR for the base-case using goal-seek. For this part (of your answer only) take a print of the calculation of base-case NPV and another print when goal-seek finds the IRR. (7 marks)

Answer rating: 100% (QA)

To determine whether upgrading the railroad companys station equipment is financially viable we need to calculate the net present value NPV of the pro... View the full answer