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Question
Meals on Wings Inc. supplies prepared meals for corporate aircraft (as opposed to public commercial airlines), and it needs to purchase new broilers. If the broilers are purchased, they will replace old broilers purchased 10 years ago for $105,000 and which are being depreciated on a straight line basis to a zero salvage value (15-year depreciable life). The old broilers can be sold for $60,000. The new broilers will cost $200,000 installed and will be depreciated using MACRS over their 5-year class life; they will be sold at their book value at the end of the 5th year. The firm expects to increase its revenues by $18,000 per year if the new broilers are purchased, but cash expenses will also increase by $2,500 per year. If the firm's required rate of return is 10 percent and its tax rate is 34 percent, what is the NPV of the broilers?
a. −$61,019
b. $17,972
c. $28,451
d. −$44,553
e. $5,021
Answer
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