Question
1. A project requires purchase of machinery for $150,000. The project generates an annual after-tax operating income of $10,000. The machines expected useful life is
1. A project requires purchase of machinery for $150,000. The project generates an annual after-tax operating income of $10,000. The machines expected useful life is 8 years with no salvage value at the end of its useful life. The required return for the project is 10%. The CCA rate for the machines is 20%. The companys marginal income tax rate is 40%.
What is the PV of after-tax cash flows?
2. You purchased equipment in 2017 for $120,000 plus it costs $20,000 to have it delivered and installed. You also traded your old computer worth $20,000. The old CCA half-year rule still applied. It will need $10,000 in spare parts inventory (increase in NWC), which it can sell for the $5,000 at the end of the project, you believe that the equipment will have a salvage value of $19,000 in 6 years. The companys marginal tax rate is 40%. If the assets CCA rate is 20% and the required return on this project is 10%,
What is the present value of the net working capital changes associated with the project?
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