CAPITAL BUDGETING WITH INCOME TAXES Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. This is an essential investment because manual sorting is too demanding and causes physical problems for employees. Two models that would adequately meet the company's needs are the Price and Allen models. Information related to each model includes: Cost of machines Working Capital needed Salvage value Life-years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital 30% 25% 12% $ $ $ $ Price 47,500 $ 20,000 $ $ 8 24,000 $ Allen 95,000 25,000 10,000 8 40,000 Required: A) Compute the after-tax net present value, internal rate of return, payback periods and profitability index for both models using the total-cost approach.
CAPITAL BUDGETING WITH INCOME TAXES Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. This is an essential investment because manual sorting is too demanding and causes physical problems for employees. Two models that would adequately meet the company's needs are the Price and Allen models. Information related to each model includes: Cost of machines Working Capital needed Salvage value Life-years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital 30% 25% 12% $ $ $ $ Price 47,500 $ 20,000 $ $ 8 24,000 $ Allen 95,000 25,000 10,000 8 40,000 Required: A) Compute the after-tax net present value, internal rate of return, payback periods and profitability index for both models using the total-cost approach.
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 18P: OPTIMAL CAPITAL BUDGET Hampton Manufacturing estimates that its WACC is 125%. The company is...
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