Question

A 5-year project requires a $300,000 investment in a machine that is expected to worth $50,000 when the project ends. Operating expenses are expected to be $75,000 in the first year and are expected to increase 3% per year over the life of the project. The appropriate discount rate is 8%, the company’s tax rate is 20%, and the CCA rate is 30%. What amount would you use for salvage value in your NPV calculation?

Answer 1

WDV is coming 50421 at year end 5

Particular	Year 1	Year 2	Year 3	Year 4	Year 5
Cost/WDV	300,000.00	210,000.00	147,000.00	102,900.00	72,030.00
Less: Dep at 30%	90,000.00	63,000.00	44,100.00	30,870.00	21,609.00
WDV	210,000.00	147,000.00	102,900.00	72,030.00	50,421.00

Salvage value is $50084.2

Particular	Amt
Sale value	50,000.00
Less; Book Value	50,421.00
Loss on Sale (A)	(421.00)
Tax Saving on Sale (B)	(84.20)
Salvage Value (A-B)	50,084.20