will save $370,940 annually in operating costs before taxes in those five years. Assume a tax rate of 32.73%. Using a required return of 13.67%, what is the NPV of the machine purchase? Options $210,082 $215,760 $221,437 $227,11

will save $370,940 annually in operating costs before taxes in those five years. Assume a tax rate of 32.73%. Using a required return of 13.67%, what is the NPV of the machine purchase? Options $210,082 $215,760 $221,437 $227,11

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 5PROB

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A new machine costs $798,410 and falls in a 26.50% CCA class. The machine will have zero value after 5 years of use but will save $370,940 annually in operating costs before taxes in those five years. Assume a tax rate of 32.73%. Using a required return of 13.67%, what is the NPV of the machine purchase?

Options

$210,082

$215,760

$221,437

$227,115

$232,793

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