Problem
Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1.07 million. The lathe will cost $38,400 to run, will save the firm $130,400 in labour costs, and will be useful for 8 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. Ilana has many other assets in this asset class. The lathe is expected to have a 8-year life with a salvage value of $97,000. The actual market value of the lathe at that time will also be $97,000. The discount rate is 13% and the corporate tax rate is 35%. What is the NPV of buying the new lathe?