Reference no: EM133074034

YYY is a company considering a new capital budgeting project. The project requires an initial investment in a machine with a cost of $250,000. The machine will last for ten years, after which it can be salvaged for the risk-free (nominal) value of $50,000. It belongs to a CCA asset class with CCA rate 20%, and the firm will continue to have assets in the machine's CCA class after the machine is sold. A marketing study costing$50,000 and paid for last year states that the machine is expected to increase annual pre-tax revenues by $100,000 in real terms and expected to increase annual pre-tax costs by$20,000 in real terms throughout the life of the machine (ten years long, with the first impact on revenues and costs taking place one year from today). The real interest rate for risk free cash flows is 2% and the nominal interest rate for risky cash flows is 25%. The inflation rate is 4%, and the firm is taxed at a rate of 40%. Calculate the NPV of the project