Cost of Capital is 16% for all projects. Corporate taxes are paid at the rate of 35%. Initial project development cost projected at $125,000. Costs would be capitalized and qualify for a CCA rate of 30%. Consultant's fee for the project 15,000 expensed when incurred. To recover cost IT department would charge $310/hr and estimates 100 hours of computer time. If project is successful it will save the company additional dollars (before tax):
year1-70,000
year2- 70,000
year3- 60,000
year4- 30,000
year5- 20,000
1. What is the NPV
2. Salvage value after 3 years would be $30,000, $20,000 after 4 years and $0 after 5 years? Should they remove the equipment before 5 years are up? when?