THE FOLLOWING TWO QUESTIONS ARE BASED ON THE FOLLOWING DATA FOR: Cost of the...
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THE FOLLOWING TWO QUESTIONS ARE BASED ON THE FOLLOWING DATA FOR: Cost of the equipment is $2,500,000 and it costs $200,000 to have it delivered and installed. It is estimated the equipment will have a salvage value of $100,000 in 5 years (the life of the asset). The equipment will have a CCA rate of 30%. The PV of the Tax Shield related to this capex is $776,474 There will be no impact on working capital. The equipment will replace an old machine and is expected to generate before tax cost savings of $800,000 a year. The firm's marginal tax rate is 40% and has required rate of return of 9% The PV of the Tax Shield for capex expenditure is $776,474. Based on a NPV analysis, should the firm accept this project? No as NPV is $8,499 No as NPV is -$36,496 None of these answers. Yes as NPV is -$36,496 Yes as NPV is $8,499 Question 5 (1 point) Based on an IRR analysis, should the firm accept this project? Yes as IRR is 8.26% No as IRR is 9.17% No as IRR is 8.26% Yes as IRR is 9.17%
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