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3. A frozen food company plans to buy a freeze ray from Cisco Frost. The freeze ray has the following Costs and incomes: Initial cost
3. A frozen food company plans to buy a freeze ray from Cisco Frost. The freeze ray has the following Costs and incomes: Initial cost of $5,000 in year 0 Maintenance costs of $2,000 per year from years 1 to 10. Income of $6,000 per year from years 5 to 10. Salvage income of $1,000 in Year 10. Background information: Before-tax MARR is 8%, and after-tax MARR is 6% The tax rate, t, is 25% Refrigeration equipment such as a freeze ray has a CCA rate of d 20% per year. Tax deductions can NOT be carried forward to future years. There is no recapture or terminal loss (the firm has other refrigeration equipment) a. (12 marks) What is the present worth of this investment? Show your work. Present Worth: b. (3 marks) Suppose that in Year 5, the company receives a one-time tax deduction of $500, AND a one- time refundable tax credit of $250. What is the present (Year 0) value of the benefits (tax savings) from these incentives? Show your work. Present value of benefits
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