Question
Ebico Ltd. is deciding whether to expand its production facility by buying additional machinery, which costs $2,100,000, which is expected to last a long time.Management
Ebico Ltd. is deciding whether to expand its production facility by buying additional machinery, which costs $2,100,000, which is expected to last a long time.Management has estimated that the machine will generate additional sales of 25,000 units (1st year) and 35,000 units (2nd year). The sale price of each unit is $250. Operating expenses (including cost of goods sold) are 70% of revenue. The machinery belongs to class 8 for CCA purpose (CCA rate is 20%). In the first year, besides buying that machine, the company does not incur any additional capital expenditure. The company projects that in the first year the net working capital will increase by $120,000 and remain the same for the second year. The company tax rate is 35%
a.) calculate the CCA amount for the first 2 years
b.) Calculate the free cash flow of year 1 and year 2 of this project
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