A company is purchasing a new equipment in Class 8 (20% CCA rate -- declining balance...

A company is purchasing a new equipment in Class 8 (20% CCA rate -- declining balance class, half year rule applicable) in 2019 for $33,000.

The machine is expected to result in annual revenue of $16,000 for each of the next five years and will be sold at the end of that time for an expected salvage value of $13,000.

Maintenance expenses are expected to be $1,400 for the first year and to increase by $200 per year for each successive year of operation.

A loan of $12,000 is obtained at 8% rate per year and the loan has to be paid back in five equal installments covering principal and interest.

The company has an effective tax rate of 40% and requires an after-tax MARR of 8%.

What is the present worth of the proposed purchase? Use the spread sheet method.

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Expert Solution

Rahul Sunny answered 1 year ago

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