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Snowy Mountain Timber Ltd is considering purchasing a new wood saw that costs $50,000. The saw...

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Finance

Snowy Mountain Timber Ltd is considering purchasing a new woodsaw that costs $50,000. The saw will generate revenues of $100,000per year for five years. The cost of materials and labour needed togenerate these revenues will total $60,000 per year, and other cashexpenses will be $10,000 per year. The machine is expected to sellfor $4,000 at the end of its five-year life and will be depreciatedon a straight-line basis over five years to zero. Snowy Mountain’stax rate is 34 percent, and its opportunity cost of capital is13.30 percent.

The project's NPV is?

The project should be accepted/rejected

Answer & Explanation Solved by verified expert
4.3 Ratings (548 Votes)
The projects NPV is 3242001 The project should be accepted Step1Calculation of annual operating cash flow Revenue 100000 Less Cost of materials Labor 60000 Other cash expense 10000 Depreciation expense 10000    See Answer
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