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Hydro-Québec is considering introducing a new power generator. The initial cost is $850,000, and

it will have a life of 12 years. The power generator will be depreciated with a CCA rate of 20%

and it is expected to be sold at $200,000 at the end of the 12th year. Sales revenues from the new

power generator are expected to be $80,000 per year. Variable costs will be 15% of sales revenue

and fixed costs are expected to be $16,000 per year. The firm also needs to invest $20,000 in net

working capital at the beginning of the project, which will be recovered when the project ends.

$10,000 has been spent in the last month projecting the profitability of the new power generator.

Assume that the tax rate is 40% and the discount rate is 10%. Compute the NPV of the project and

decide if Hydro-Québec should accept or reject the project. Please show all your work and round

to 0 decimal places.


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