Capital Budgeting (SHOW WORK WITHOUT EXCEL)
OLA Industries is looking to purchase new machinery, replacing their old one costing $400,000 with a market value of $200,000. The CFO, OLA, is optimistic and believes the equipment can be sold for $100,000 at the end of its 10-year life, however, doesn’t think he’ll be able to sell the old equipment at the end of its 10-year life. The old equipment was purchased 6 years ago.
CCA = 20% Tc = 40% r = 10%
Despite being CFO, OLA's expertise and heart lies in IT. He has instead hired you to help him make the decision.
What’s the maximum price OLA Industries should pay for the equipment?