Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 per year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6% interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and the remaining balance at year 16. The corporate tax rate is 30%. If the weighted average cost of capital is 11% and the machine is the only asset in the asset class, calculate the NPV of the project using the WACC approach.
Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 per year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6% interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and the remaining balance at year 16. The corporate tax rate is 30%. If the weighted average cost of capital is 11% and the machine is the only asset in the asset class, calculate the NPV of the project using the WACC approach.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 per
year for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% and
the salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6%
interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and the
remaining balance at year 16. The corporate tax rate is 30%.
If the weighted average cost of capital is 11% and the machine is the only asset in the asset
class, calculate the
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