Purchase Evaluation with EVA Analysis
No frills is evaluating the purchase of a new crane costing $250,000. The crane is expected to have a life of 15 years. The firms after-tax cost of financing is 15.3%. The additional before-tax operating cash flows associated with the acquisition of the crane are expected to average $60,625 per year. The firm's tax rate is 20%. Using an EVA analysis, should No Frills acquire the new crane?
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Solution Summary
This solution evaluates a project on its economic value added. It shows step-by-step calculations to determine the present value of the EVA of the new crane and provides a recommendation on the purchase.
$2.19