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Compute the sleighs net present value

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Reference no: EM132776041

Question - Jolly Old St. Nick Inc. is considering purchasing an electric sleigh that would not need reindeers to power it. Currently Nick is paying reindeer wages in the amount of $180,000 per year. An electric sleigh would reduce these wages by $85,000 per year. The sleigh would cost $340,000 and would have a useful life of 12 years. Total costs to run the sleigh would be $16,000 per year. Major maintenance costing $35,000 would be needed on the sleigh in each year 5 and year 9. The sleigh would have zero salvage value at the end of 12 years. The CCA rate is 30% and Nick requires an 8% rate of return on all capital investments. The company's tax rate is 25%.

Required - Compute the sleighs net present value. Would you recommend that Nick buy the sleigh?

Reference no: EM132776041

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