Old MathJax webview

Please solve it complete in 1 hour I will Upvote you

please solve it complete within 30 minutes please

Question 5 (30 points) A company is considering reconfiguring an existing production line to produce respirator masks. To accelerate such development, the company has negotiated a total governmental grant of $300,000 received on two transactions; a receipt of $150,000 at the beginning as well as at the end of the first year. Only the first transaction of the grant is payable back with an annual interest rate of 1.25% at the end of the third year. There are two alternatives (configurations) to create the production line. The company's real Minimum Attractive Rate of Return (MARR) is 9%. Average annual inflation rate is 1.50%. The properties of these investments are provided in the following table (all dollar values are estimated in today's dollars): Configuration Configuration 1 2 Initial Cost $522,000 $740,000 (at present) Annual $43,500/year $64,000/year Maintenance cost Annual Sales 45,000 52,000 units/year units/year Production $4.5/unit $2.9/unit unit cost Product unit $9.25/unit $9.25/unit sale price Salvage $170,000 $220,000 value after 3 years CCA Rate 30% 30% Service life 3 years 3 years $9.25/unit $220,000 Product unit $9.25/unit sale price Salvage $170,000 value after 3 years CCA Rate 30% Service life 3 years 30% 3 years (a) Create the cash flow diagrams of each alternative in current dollars? Please also put on the cash flow diagram the grant amounts and the payback amount at their correct points in time. [b] What is the appropriate interest rate to be used in discounting (i.e., calculating NPW of) the cash flow in (a). [c] Assume that the grant amounts are considered for tax purpose as income. Assume that only the interest component of the grant payback is tax deductible. Find the annual taxable income and income taxes for each alternative. Half-year rule applies. [d] Find the undepreciated capital cost at the end of year 3 for both projects. What is the disposal tax effect for both alternatives due to selling the asset at salvage value? le] Calculate the NPW of both alternatives taking into account all revenues, expenses, and all taxes at a tax rate of 38% (i.e., for after-tax cash flow). le] Which alternative is economically better? Question 5 (30 points) A company is considering reconfiguring an existing production line to produce respirator masks. To accelerate such development, the company has negotiated a total governmental grant of $300,000 received on two transactions; a receipt of $150,000 at the beginning as well as at the end of the first year. Only the first transaction of the grant is payable back with an annual interest rate of 1.25% at the end of the third year. There are two alternatives (configurations) to create the production line. The company's real Minimum Attractive Rate of Return (MARR) is 9%. Average annual inflation rate is 1.50%. The properties of these investments are provided in the following table (all dollar values are estimated in today's dollars): Configuration Configuration 1 2 Initial Cost $522,000 $740,000 (at present) Annual $43,500/year $64,000/year Maintenance cost Annual Sales 45,000 52,000 units/year units/year Production $4.5/unit $2.9/unit unit cost Product unit $9.25/unit $9.25/unit sale price Salvage $170,000 $220,000 value after 3 years CCA Rate 30% 30% Service life 3 years 3 years $9.25/unit $220,000 Product unit $9.25/unit sale price Salvage $170,000 value after 3 years CCA Rate 30% Service life 3 years 30% 3 years (a) Create the cash flow diagrams of each alternative in current dollars? Please also put on the cash flow diagram the grant amounts and the payback amount at their correct points in time. [b] What is the appropriate interest rate to be used in discounting (i.e., calculating NPW of) the cash flow in (a). [c] Assume that the grant amounts are considered for tax purpose as income. Assume that only the interest component of the grant payback is tax deductible. Find the annual taxable income and income taxes for each alternative. Half-year rule applies. [d] Find the undepreciated capital cost at the end of year 3 for both projects. What is the disposal tax effect for both alternatives due to selling the asset at salvage value? le] Calculate the NPW of both alternatives taking into account all revenues, expenses, and all taxes at a tax rate of 38% (i.e., for after-tax cash flow). le] Which alternative is economically better