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  3. a new electronic process monitor costs $990,000. t

A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per...

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Finance

A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. The new monitor requires us to increase net working capital by $47,200 when we buy it. Assume a tax rate of 40%.

a. If we require a 15% return, what is the NPV of the purchase? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

NPV $

b. Suppose the monitor was assigned a 25% CCA rate. Calculate the new NPV. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

NPV $

c. Will the NPV at 25% CCA rate be larger or smaller?

multiple choice

  • Smaller

  • Larger

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