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What is the net present value of this project

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Reference no: EM132833609

Question - Lynas Ltd. is considering purchasing a new mining excavator that costs $1,500,000. The mining excavator will generate incremental revenues of $300,000 per year for ten years. The cash operating costs needed to generate these revenues will total $45,000 per year. The mining excavator will be depreciated on a straight-line basis over ten years to zero. Orange Ltd.'s tax rate is 30 percent, and its cost of capital is 7 percent.

(a) What is the net present value of this project?

(b) Should the company approve this project? Explain why or why not.

Reference no: EM132833609

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