Investment 2: Aerocomp is considering building a pipeline from a remote source of gas with only a 10-year supply of reserves. This qualifies the pipeline for a CCA rate of 20 percent rather than the normal 4 percent. The pipeline will cost $1 million; accompanying buildings will cost another $200,000. The buildings are Class 1 with a CCA rate of 4 percent.

Aerocomp will use land it acquired eight years ago to assemble this project. The land was purchased for $500,000, and it is now worth $2 million. Annual cash flows before amortization from the pipeline and taxes for the 10-year period are estimated at $625,000.

In 10 years the buildings and pipeline will be worthless, but the land will be worth $4.5 million. Environmental clean-up costs at the end of the project are expected to be $1.2 million.

Aerocomp has a tax rate of 30 percent, and its cost of capital is 14 percent. Capital gains are taxed at 50 percent of the gain.

Investment 3: Aerocomp is considering investing into Swiss Ventures Inc. The details of the project are as follows:

Capital outlays on the project are expected to occur over the next two years, and the project, which will produce widgets for the wireless communication business, will be a unique entity to the Swiss Ventures family of projects. An immediate outlay of $600,000 will be required for the land to house the specialized building that will be constructed over the next year. Final payment on the building will amount to $1.1 million inclusive and will be due in exactly one year. Payment for the machinery to produce the widgets will amount to $175,000 and will be due after the initial test period, which will take to the end of the second year.

After the testing period, cash flows will begin in the third year. It is assumed that the revenues and expenses will be acknowledged at the end of each year. Beginning in the third year, revenues are expected to amount to $875,000 until the 12th year. Expenses are projected at $325,000 to the 12th year from the third year. These estimates are the averages of estimates obtained from the marketing staff and the production department. The expected values have been determined through preliminary work by Aerocomp.

In 12 years everything will end, as the market for the widget will be gone. The building will be scrapped for $225,000, and the machinery will be sold for $50,000. It is anticipated that the land will appreciate in value by 9 percent a year

The following additional information is available:

CCA rate: building 4%

machinery 30%

Corporate tax rate 30%

Cost of capital 15%

Capital gain 50% of gain taxable

Identify cash inflows and cash outflows for each project, and how these cash flows will be treated in the calculations of financial indicators.