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Calculate the net present value of the helicopter purchase

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Tabletop Ranches, Inc. is considering the purchase of a new helicopter for $325,000. The firm's old helicopter has a book value of $85,000, but can only be sold for $60,000. The new helicopter will be subject to 25% CCA. It is expected to save $62,000 for 7 years after taxes through reduced fuel and maintenance expenses. Tabletop Ranch is in the 40% tax bracket and has a 12% cost of capital.

Problem 1: Calculate the net present value of the helicopter purchase and state whether or not the firm should buy it.

Reference no: EM132736493

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