Roask Conference Centre is considering investing in some new audio visual equipment. The required equipment has a
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Question:
Roask Conference Centre is considering investing in some new audio visual equipment. The required equipment has a 7-year life. Also, some new working capital would be required and would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 7-year life. Additional information is as follows:
- WACC = 13%
- Tax rate = 35%
- CCA rate = 30%
- Net capital investment in fixed assets = $650,000
- Required new working capital = $30,000
- Sales revenues, each year = $580,000
- Cash operating costs, each year = $330,000
- Expected salvage value in year 7 = $0
- PV of Capital Cost Allowance Tax Shield = PVCCATS = 149,590.97
Find the NPV and recommend whether the project should be accepted. Show your work.
a) What is the present value of the operating cash flows (after tax)? 2 marks
b) What is the present value of the ending cash flows? 1 mark
c) Find the NPV and what is the project decision? 1 mark
Related Book For
Taxes And Business Strategy A Planning Approach
ISBN: 9780132752671
5th Edition
Authors: Myron Scholes, Mark Wolfson, Merle Erickson, Michelle Hanlon
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