Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Saint John River Shipyard's welding machine is 15 years
old, is fully depreciated, and has no salvage value.
However, even though it is old, it is still functional as
originally designed and can be used for quite a while
longer. A new welder will cost $182, 500 and have an
estimate life of 8 years with no salvage value. The new
welder will be much more efficient, however, and this
enhanced efficiency will increase annual cash flows
before taxes (not including any CCA tax shield effects)
from $27,000 to $74,000 per year. The new welder falls
into Class 43 with a CCA rate of 30%. The applicable
corporate tax rate is 25%, and the project cost of
capital is 12%. What is the NPV if the firm replaces the
old welder with the new one?
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Transcribed Image Text:Saint John River Shipyard's welding machine is 15 years old, is fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost $182, 500 and have an estimate life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase annual cash flows before taxes (not including any CCA tax shield effects) from $27,000 to $74,000 per year. The new welder falls into Class 43 with a CCA rate of 30%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
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