Question
Margareth's Gaming Company is considering a project which will require the purchase of $1.6 million in new equipment. The equipment belongs in a 20% CCA
Margareth's Gaming Company is considering a project which will require the purchase of $1.6 million in new equipment. The equipment belongs in a 20% CCA class. Margareth's Gaming Company expects to sell the equipment at the end of the project for 15% of its original cost. Annual sales from this project are estimated at $1.2 million. Net working capital equal to $100,000 will be required to support the project. All of the net working capital will be recouped at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%. The project span is three years, and the annual costs are 20% of the sales. (Answers should be rounded to the dollar; dont need to present the cents.)
a. Find the PV of CCA Tax Shield.
b. Find the PV of OCF.
c. What is the NPV for this project?
d. What is the IRR for this project?
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