Question
In: Finance
Snowy Mountain Timber Ltd is considering purchasing a new wood saw that costs $55,000. The saw...
Snowy Mountain Timber Ltd is considering purchasing a new wood
saw that costs $55,000. The saw will generate revenues of $100,000
per year for five years. The cost of materials and labour needed to
generate these revenues will total $60,000 per year, and other cash
expenses will be $10,000 per year. The machine is expected to sell
for $1,000 at the end of its five-year life and will be depreciated
on a straight-line basis over five years to zero. Snowy Mountain’s
tax rate is 34 percent, and its opportunity cost of capital is
17.10 percent. The project's NPV is $___________,The project should
be rejected or accepted?
Solutions
Expert Solution
Solution :
The project's NPV is $ 20,439.58
= $ 20,440 ( when rounded off to the nearest whole number )
The project should be accepted as the NPV is positive.
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.
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