Question
(can someone help me with this question) Impendium Corporation is considering investing in a new 3D printer that has an estimated life of three years.
(can someone help me with this question)
Impendium Corporation is considering investing in a new 3D printer that has an estimated life of three years. The cost of the printer is $30,000 and the printer falls under asset class 43 and has a capital cost allowance (CCA) rate of 30%.
The new equipment will result in sales of 2000 cellphone cases in year 1. Sales are estimated to grow by 10% per year each year through year 3. The price per case that Impendium will charge its customers is $18 each and is to remain constant. The cases have a cost per unit to manufacture of $9 each.
Installation of the printer and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It is estimated that Impendium needs to hold 2% of its annual sales in cash, 4% of its annual sales in accounts receivable, 9% of itsannual sales in inventory, and 5% of its annual sales in accounts payable. The firm is in the 35% tax bracket and has a cost of capital of 10%.
a) What is the CCA tax shield in the first and second years?
b) What is the required change in Net Working Capital in the second and third years?
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