Evaluate net present value of machine, Financial Management

Assignment Help:

Kenneth Su Gold Corp (KSGC) is considering the purchase of a new piece of machinery. The new machinery would cost $80,000. You are given the following facts:

The new machine will replace an existing machine that has a current market value of $30,000.

The new machine would reduce before tax operating costs by $15,000 per year for 10 years. These cost savings would occur at year-end.

The old machine is now 5 years old. It is expected to last for another 10 years, and will have no resale value at the end of those 10 years. It was purchased for $60,000 and is being depreciated at a CCA rate of 20%.

The new machine will also be depreciated at a CCA rate of 20%. KSGC expects to be able to sell the machine for $10,000 at the end of 10 years. At that time KSGC plans to reinvest in a new machine in the same CCA pool.
The new machine requires a one-time increase in net working capital of $5,000. This amount is required at the beginning of the project and is fully recovered at the project's end.

The appropriate discount rate is 12% and the tax rate is 40%. What is the NPV associated with replacing the machine?

Related Discussions:- Evaluate net present value of machine

Types of government stocks, Types of Government Stocks Issue of Stock t...

Types of Government Stocks Issue of Stock through AuctionThe RBI, on behalf of the government, issues notification to auction government securities, stating the amount and time

par value, The face value of the debt security can be thought of as ...

The face value of the debt security can be thought of as the principal amount on which interest is paid by the issuer. It is the amount the issuer is willing to r

Define burden of a tax is shared by producers and consumers, The burden of ...

The burden of a tax is shared by producers and consumers. Under what conditions will consumers pay most of the tax? Under what conditions will producers pay most of it? What det

What are the reasons for mergers and acquisitions, Reasons for mergers an...

Reasons for mergers and acquisitions The key reasons for mergers and acquisitions, is to maximise shareholder wealth otherwise it wouldn’t be worthwhile. R

Under what circumstances is a warrant''s value high, Under what circumstanc...

Under what circumstances is a warrant's value high ? Explain. A warrant's value would be elevated when the stock price, time to expiration, and/or expected stock price volatil

What is traded investments, Traded investments The term traded investme...

Traded investments The term traded investment refers to the buy of an investment asset which is traded in the financial markets. Instance includes government and ordinary share

Explain terminal value calculation at end of forecast period, Explain the t...

Explain the terminal value calculation at the end of the forecast period. Why is it necessary? The organization whose business operation is being valued is not supposed to sudde

Expected return of your portfolio, You own three stocks: 1000 shares of App...

You own three stocks: 1000 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5000 shares of Goldman Sachs Group. The current share prices and expected returns of Apple,

What is capital budgeting, What is Capital Budgeting Capital Budgeting...

What is Capital Budgeting Capital Budgeting is probably the most financial decision for a firm. It relates to selection of an asset or investment proposal or course of action

Determine the concept of dividend yield, Dividend yield Dividend yield ...

Dividend yield Dividend yield = (Dividend per share/Market share price) x 100% Dividend yield is the cash return on the share (not whole return which is cash dividend and ca

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages