Question
Lendrum Inc. is considering a new project whose data are shown below. The equipment has an economic life of 3 years, and is in CCA
Lendrum Inc. is considering a new project whose data are shown below. The equipment has an economic life of 3 years, and is in CCA class 10 (30%). The half-year rule applies. Revenues and cash operating costs are expected to be constant over the projects 3-year life. What is the net operating cash flow for Year 1?
| Equipment cost | $80,000 | ||||||
| Annual sales revenues | $60,000 | ||||||
| Annual cash operating costs | $35,000 | ||||||
| Tax rate | 25.0% | ||||||
| a. | $21,750 | ||||||
| b. | $25,000 | ||||||
| c. | $13,000 | ||||||
| d. | $9,750 | ||||||
Strathcona Inc. uses a WACC of 6% for below-average risk projects, 8% for average risk projects, and 10% for above-average risk projects. Which independent project should Strathcona Inc. accept?
| a. | Without information about the projects NPVs we cannot determine which one(s) should be accepted. | |
| b. | Project C, which has above-average risk and an IRR of 11% | |
| c. | Project A, which has average risk and an IRR of 9% | |
| d. | Project B, which has below-average risk and an IRR of 5.5% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Fundamental accounting principle
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta
21st edition
1259119831, 9781259311703, 978-1259119835, 1259311708, 978-0078025587
