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Hydro One is evaluating buying two different transforms. Ø  Transformer #1: costs $370,000 has a 3 year...

Hydro One is evaluating buying two different transforms.

Ø  Transformer #1: costs $370,000 has a 3 year life, has pre-tax operating cost of $80,000 per year.

Ø  Transformer #2: costs $475,000 has a 5 year life, has pre-tax operating cost of $30,000 per year.

Ø  Both transformers are Class 8 (CCA rate of 20% per year) and both have a savage value of $40,000.

The firm’s tax rate is 35% and discount rate is 10%

What is the NPV for Transformer #2?

Select one:

a. -$336,473.35

b. -$424,083.30

c. -$276,985.87

d. -$543,098.73

e. None of these.

Solutions

Expert Solution

Correct answer: b. -$424,083.30

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago
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