Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 per year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6% interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and the remaining balance at year 16. The corporate tax rate is 30%. If the weighted average cost of capital is 11% and the machine is the only asset in the asset class, calculate the NPV of the project using the WACC approach.
Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 per year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6% interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and the remaining balance at year 16. The corporate tax rate is 30%. If the weighted average cost of capital is 11% and the machine is the only asset in the asset class, calculate the NPV of the project using the WACC approach.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 per
year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and
the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6%
interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and the
remaining balance at year 16. The corporate tax rate is 30%.
If the weighted average cost of capital is 11% and the machine is the only asset in the asset
class, calculate the
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education