How much is the incremental net present value of investment

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Problem

Takumi Ltd. is considering an investment in a new, more efficient machine to replace an existing machine needed to produce its Fancy product. The Fancy product is in the mature stage of its life cycle, and Takumi expects to produce and sell it for only four more years. Data pertaining to the two machines is as follows: New machine Existing machine Current cost, net of capital cost allowance (CCA) tax shield $125,000 N/A Current disposal value, net of lost CCA tax shield N/A $40,000 Disposal value in four years, net of lost CCA tax shield $31,000 $16,000 Annual amortization $11,000 $6,000 Annual cash operating costs, net of tax $9,000 $17,000 Takumi's required rate of return is 14%. For tax purposes, the two machines are considered to be in the same asset class, together with many other of the company's assets. Get the instant assignment help. How much is the incremental net present value (NPV) of the investment in the new machine (rounded to the nearest hundred)?

Reference no: EM133901445

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