Silvana Zhang of Sajjad Jafri & Geopeng Li Limited is considering purchasing a new widget making machine. She would like to know the maximum price she should pay for the new machine.
1. The new machine will replace the existing machine, which has a current market value of $1,000,000.
2. New machine will reduce before tax operating cost by $300,000 per year for 15 years.
3. The old machine is expected to last for another 10 years and will have a salvage value of $100,000 at the end of 10 years.
4. The new machine is expected to last for 15 years and will have a salvage value of $200,000.
CCA rate is 20%, tax rate is 30%, and the required rate of return is 15%