A company produces hot tubs. The manufacturing equipment to build the hot tubs will cost $700,000. Installation costs $50,000, setup costs $30,000 and the training costs $20,000. The company also had a marketing study done for $50,000. The useful life of the new equipment is 8 years.

The hot tubs would be priced at $300. After the first year, the sales price is estimated to increase by 2% every year. Variable operating costs are 55% of sales. Total fixed operating costs are $150,000 /year. $40,000 in working capital required at the start (time period zero). Entire amount of working capital will be recovered at the end of the project. Estimated salvage value of the equipment after 8 years is $150,000. Marginal tax rate 40%. CCA rate of the equipment 20%. Company uses the DCF model to determine the cost of retained earnings and new common stock.

D0 = $0.80; P0 = $22.50; g = 8.00% (constant) and F=9.00%.

9.25% coupon rate. Semi-annual payment. $1,000 par value bond that matures in 20 years sells at a price of $1,075. The new bonds would be privately placed with no flotation costs. The target capital structure is 40% debt, 40% common equity (retained earnings) and 20% common equity (new common stock).

Calculate the Present Value of CCA for each year.