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Albatross Airlines is evaluating the acquisition of a new aeroplane. Its price is $40,000, it qualifies for a 6% investment tax credit and it will be in CCA class 9 (25%). Purchase of the new plane would require an increase in net working capital by $2,000; before-tax revenues by $20,000 per year and operating costs by $5,000 per year. The plane will be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40%, and the project's cost of capital is 14%.

Required:

What is the project's net present value?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M944843

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