1) Acadia Construction Company is a new business that is considering its first project. The required equipment investment by the company is $50,000 (CCA class 39=25%) with an expected revenue of $20,000 in year 1, increasing by 5%/year for the 5-year life of the project. Costs in year 1 are expected to be $5000, increasing by 3%/year for the 5-year life of the project. The salvage value of the equipment at the end of the five years is $5000 and the tax rate is 40%. a) What is the NPW of the project and the IRR if the MARR is 15%? Answer: $-2,527 13% b) Because the company is a new company, it may be eligible to enjoy a reduced tax rate over the life of the project. If Acadia Construction Company wants to earn a 15% on their project, what would the reduced tax rate have to be? Answer: 30.3%

2) Referring to question 5 above, if the initial investment of $300,000 must be financed by a bank, at an effective annual interest rate of 12%/year over 4 years (annual payments), is the project still worth pursuing? Compare your answer with Question 1, explain in one sentence what has happened. Answer: NPW=$72,911