Ilana Industries, Inc., needs a new lathe. It can buy a new high- speed lathe for...

Ilana Industries, Inc., needs a new lathe. It can buy a new high- speed lathe for $1.08 million. The lathe will cost $ 31,500 to run, will save the firm $123,300 in labour costs, and will be useful for 9 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25% Ilana has many other assets in this asset class. The lathe is expected to have a 9-year life with a salvage value of $101,000. The actual market value of the lathe at that time will also be \$101,000 . The discount rate is 5% and the corporate tax rate is 35%

what is the NPV of buying the new lathel?

Expert Solution

Please find the below calculation of the same

The NPV is negative,$295,508. Therefore the proposal should not be accepted.

jeff jeffy answered 2 years ago

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