Question
A company is considering the purchase of a wind mill that costs $400,000 and produces before-tax operating cash flows (excluding CCA tax shields) of $126,000
A company is considering the purchase of a wind mill that costs $400,000 and produces before-tax operating cash flows (excluding CCA tax shields) of $126,000 per year for six years. The project requires a $18,600 increase in net working capital in Year 0; the working capital is recovered in Year 7, one year after the end of the operating cash flows. The CCA rate is 25.0% (declining balance method) and the half-year rule applies. The discount rate is 8.0%, the tax rate is 38.0% and the expected salvage value at the end of 6 years is zero. What is the present value of the company's CCA tax shields over the life of the project?
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