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Monteregie Auto Services is considering an opportunity to invest $550,000 in a capital asset that ...

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Monteregie Auto Services is considering an opportunity to invest $550,000 in a capital asset that ...

Monteregie Auto Services is considering an opportunity to invest $550,000 in a capital asset that will generate additional after-tax operating income of $200,000 per year. The asset has a six-year life, a CCA rate of 20%, and an expected salvage value of $60,000 at the end of the 6th year. The project has a beta of 1.5. The company's cost of capital is 12% and marginal tax rate is 35%. The risk-free rate is 4.5% and the market risk premium is 6%. Ignoring CCA, what is the present value of the after-tax operating cash flows?

▸ $822,281

▸ $788,501

▸ $534,483

▸ $512,526

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Corporate Finance

Edition: 5^th

Author: Booth

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