10.a

b.

c.

d.

You will use the following information to answer 3 different questions (I will repeat it again, but it is the same information). Real Natura Farm is an organic vegetable producer in Perth, ON. The owner is wondering whether to replace his old tractor with a brand new one. The offer he received from a sales representative of the local tractor manufacturing company is as follows. Today, I sell you a new tractor for $93,000 and buy your old tractor for $13,000. The economic life of the tractor is five years. If you buy a new tractor, I buy it back for $18,000 at the end of five years. If you keep using your old tractor, I will buy it for $2,000 at the end of five years. The new tractor is fuel-efficient and does the job faster. If the new tractor is bought, the annual profits are expected to increase by $20,000 (before tax). The CCA rate for tractors is 30%, tax rate is 35%, and the required rate of return on capital is 8.9%. What is the present value of the additional depreciation tax shield that the owner receives from the new tractor vs. the old tractor? $13,507.30 $17,891.60 $20,904.80 $21,257.20 You will use the following information to answer 3 different questions (I will repeat it again, but it is the same information). Real Natura Farm is an organic vegetable producer in Perth, ON. The owner is wondering whether to replace his old tractor with a brand new one. The offer he received from a sales representative of the local tractor manufacturing company is as follows. Today, I sell you a new tractor for $93,000 and buy your old tractor for $13,000. The economic life of the tractor is five years. If you buy a new tractor, I buy it back for $18,000 at the end of five years. If you keep using your old tractor, I will buy it for $2,000 at the end of five years. The new tractor is fuel-efficient and does the job faster. If the new tractor is bought, the annual profits are expected to increase by $20,000 (before tax). The CCA rate for tractors is 30%, tax rate is 35%, and the required rate of return on capital is 8.9%. What is the present value of the increase in profits after tax? $50,696.90 $58,792.40 $62.629.70 $77.995.30 You will use the following information to answer 3 different questions (I will repeat it again, but it is the same information). Real Natura Farm is an organic vegetable producer in Perth, ON. The owner is wondering whether to replace his old tractor with a brand new one. The offer he received from a sales representative of the local tractor manufacturing company is as follows. Today, I sell you a new tractor for $93,000 and buy your old tractor for $13,000. The economic life of the tractor is five years. If you buy a new tractor, I buy it back for $18,000 at the end of five years. If you keep using your old tractor, I will buy it for $2,000 at the end of five years. The new tractor is fuel-efficient and does the job faster. If the new tractor is bought, the annual profits are expected to increase by $20,000 (before tax). The CCA rate for tractors is 30%, tax rate is 35%, and the required rate of return on capital is 8.9%. Should the owner replace the tractor? Yes, because the NPV is positive No, because the NPV is negative Yes, because the EAA is positive No, because the EAA is negative You are considering the manufacturing of a new product. The equipment necessary to manufacture this item costs $600,000. The equipment has a life of six years and straight-line depreciation will be used (assume zero salvage). This firm's tax rate is 40% and the required rate of return on this risky project is 12%. Sales revenue is expected to be $250,000 per year and variable costs are expected to be 20% of sales. What is the per year break-even level of fixed costs? $13,440.90 $18,294.70 $23,440.90 $57,774.30