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4. value: 25.00 points cost $38,500 to run, will save the firm $132,800 in labour costs, and will be useful for 12 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. Ilana has many other assets in this asset class. The lathe is expected to have a 12-year life with a salvage value of $109,000 The actual market value of the lathe at that time will also be $109,000. The discount rate is 9% and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Round your answer to the nearest cent.) NPV S

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Answer #1

NPV = - $244217

NPV:
YR. Cash flow Dep. (25%ofBV) Acc. Dep. IBT Tax *0.35 IAT Net Cash Flow Dicount rate 9% PV
0 -950000 -950000 1 -950000
1 94300 237500 237500 -143200 -50120 -93080 144420 0.917 132433
2 94300 178125 415625 -83825 -29339 -54486 123639 0.842 104104
3 94300 133594 549219 -39294 -13753 -25541 108053 0.772 83417
4 94300 100195 649414 -5895 -2063 -3832 96363 0.708 68225
5 94300 75146 724561 19154 6704 12450 87596 0.65 56938
6 94300 56360 780920 37940 13279 24661 81021 0.596 48288
7 94300 42270 823190 52030 18211 33820 76089 0.547 41621
8 94300 31702 854893 62598 21909 40688 72391 0.502 36340
9 94300 23777 878670 70523 24683 45840 69617 0.46 32024
10 94300 17833 896502 76467 26764 49704 67536 0.422 28500
11 94300 13374 909877 80926 28324 52602 65976 0.388 25599
12 94300 10031 919907 84269 29494 54775 64806 0.356 23071
Salvage 109000 109000 38150 70850 70850 0.356 25223
Net Present Value = -244217
Should not buy lathe as NPV is in negative.
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