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Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have...

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Accounting

Optimistic Company is evaluating the purchase of a new machine that costs $720,000, will have a CCA rate of 20%, an estimated useful life of 10 years and a $30,000 terminal disposal price. This piece of equipment would need a major overhaul at the end of 7 years that is expected to cost $40,000. Also, if this machine is purchased there will be a required increase in working capital of $60,000. This entire amount will be released at the end of the machines useful life. The companys marginal tax rate is 36%. It is estimated that the machine will increase before tax profits by $220,000 annually. Optimistic Company requires a 12% after tax rate of return. Based on the above information, calculate the net present value of this option.
NOTE: Email Sean a copy of your detailed solution to this question identifying all of the components that you included to come to your answer. If it is not correct, I may be able to find part marks.
Multiple Choice
$193,020
$177,583
$177,142
$201,454
None of the above

Answer & Explanation Solved by verified expert
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