1. Can someone explain to me what CCA is and what calculation was used to arrive at $300,000 at year one.

2. How do i calculate the CCA for year 2,3,4,5

3. What calculation was used to arrive at $120,000 for tax shield for year one

4. how do i calculate the tax shield for year 2,3,4,5

Question 2 VIP Machining Ltd. is planning to purchase a new machine this year. The cost of the machine is $3,000,000. The machine is expected to produce steel desks for the next five years. The company will use straight line amortization for this machine. The machine is expected to produce 42.000 metal desks per year. The selling price of a metal desk is expected to be $40.00 per desk. Variable production costs are $10 per desk and allocated fixed costs are $5.00 per desk. One skilled engineer must be hired to oversee the entire operation. The total salary and benefit costs for the new employee will be $110.000 per year for the next five years, Repairs and maintenance on the machine will be $50,000 per year for the next five years. The company uses a 12% after tax required rate of return, has a 40% tax rate and classifies the machine in class 8 which has a CCA rate of 20%. Inflation is expected to persist for the next five years at 2% per year. REQUIRED: 1. Determine when the machine will payback (ignore inflation). 2. Calculate the after tax net present value of the machine using a nominal rate of return approach. 1,680,000 Annual cash flow from the machine Sales revenue 42,000 desks @ $40.00 Cash operating costs: Variable production 42,000 @ $10.00 Engineer's salary Repairs and maintenance Net cash flow before income taxes Income taxes at 40% Net after tax annual increase in cash flow 420,000 110,000 50,000 1,100,000 440,000 660,000 Cumulative cash flows from the machine: TAX SHIELD OPERATING TOTAL CUMULATIVE BALANCE YEAR CCA @ 40% CASH FLOWS CASH FLOWS CASH FLOWS TO PAYOUT 1 300,000 120,000 660,000 780,000 780,000 2,220,000 2 540,000 216,000 660,000 876,000 1,656,000 1,344,000 3 432,000 172,800 660,000 832,800 2,488,800 511,200 4 345,600 138,240 660,000 798,240 3,287,040 5 276,480 110,592 660,000 770,592 4,057,632 UWNE INVESTMENT IN THE MACHINE IS $3,000,000 PAYBACK PERIOD IS 3 years and 234 DAYS (3,000,000) For NPV: Initial Investment PV of annual operating cashflows PMT=660,000; N=5; 1/Y = 12; FV=0 2,379,152 PUTS x 106 709,821 3M x 20% x 40% 20% + 12% 1.12 NPV 88,974