Question
1) Best Darn Glasses (BDR) is thinking of investing in a sandblasting machine for its glassware. It provides you with the following information: The initial
1) Best Darn Glasses (BDR) is thinking of investing in a sandblasting machine for its glassware. It provides you with the following information: The initial investment for this project would be $235,000 in specialized machinery. According to CRA, this machine falls into a CCA class of 8%. There is the possibility of salvage of $6,000, although its not for sure. The risk-adjusted cost of capital is 12% and the companys tax rate is 25%. Calculate the CCA tax shield under both scenarios with and without salvage.
2) Using the information from above, calculate the projects NPV if the following information were also provided to you: Cost of maintenance of the sandblasting machine is $35,000 per year, and the machine will only last 10 years. The salvage value, at that point, will be zero. The companys revenues will be $170,000 per year with direct production costs of $27,000.
Please show all calculations and workings. If you are going to use Excel, please put both questions on the same sheet. You may also use Word. Please also name your file with your name before you submit it.
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