Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering purchase of improved equipment for their Iaboratory at Telegraph Creek. Here is the information they have: + The equipment costs $100,000 and will cost $80,000 per year to run. + It has an economic life of 10 years but can be depreciated over five years by the straightline method (see Section 6-2). + It will recover an additional 5,000 ounces of silver per year. + Silver is selling for $20 per ounce. Over the past 10 years, the price of silver has appreciated by 4.5% per year in real terms. Silver is traded in n active, competitive market. + Stikine's marginal tax rate is 35%. Assume U.S, tax law. + Stikine's company cost of capital is 8% in real terms. + The nominal interest rate is 6%. What s the NPV of the new equipment? Make additional assumptions as necessary. Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering purchase of improved equipment for theirlaboratory at Telegraph Creek. Here is the information they have:• The equipment costs $100,000 and will cost $80,000 per year to run.• It has an economic life of 10 years but can be depreciated over five years by the straightline method (see Section 6-2).• It will recover an additional 5,000 ounces of silver per year.• Silver is selling for $20 per ounce. Over the past 10 years, the price of silver has appreciated by 4.5% per year in real terms. Silver is traded in an active,competitive market.• Stikine's marginal tax rate is 35%. Assume U.S. tax law.• Stikine's company cost of capital is 89% in real terms.• The nominal interest rate is 696.What is the NPV of the new equipment? Make additional assumptions as necessary.

Information Provided: Equipment costs = $100,000 Yearly cost to run = $80,000 Economic life = 10…

Answered: What s the NPV of the new equipment?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

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Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering purchase of improved equipment for their Iaboratory at Telegraph Creek. Here is the information they have: + The equipment costs $100,000 and will cost $80,000 per year to run. + It has an economic life of 10 years but can be depreciated over five years by the straightline method (see Section 6-2). + It will recover an additional 5,000 ounces of silver per year. + Silver is selling for $20 per ounce. Over the past 10 years, the price of silver has appreciated by 4.5% per year in real terms. Silver is traded in n active, competitive market. + Stikine's marginal tax rate is 35%. Assume U.S, tax law. + Stikine's company cost of capital is 8% in real terms. + The nominal interest rate is 6%. What s the NPV of the new equipment? Make additional assumptions as necessary.

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