Question 1 (1 point)

Kaywinnet Inc. is currently assessing whether it should purchase a new robotic production line. The new robotic line will cost $2,750,000 and last 10 years. The equipment qualifies for a CCA rate of 30%. It also qualifies for the Accelerated Investment Incentive with 1.5 times CCA allowed in the year of acquisition. The companys current cost of capital for this project is 10% and its income tax rate is 28%. What is the present value of the CCA tax shield from purchasing the new robotic production line?

Question 1 options:

	$577,500
	$603,750
	$635,526
	$644,135

Question 2 (1 point)

Derrial Co. is currently assessing an investment in new mixing machinery. The new machine will cost $5,761,000 and last five years. At the end of five years, Derrial expects that the machine can be sold for $845,000. The equipment qualifies for a CCA rate of 30%. The machine qualifies for the Accelerated Investment Incentive at 1.5 times in the year of acquisition. The companys current cost of capital for this project is 12% and its income tax rate is 27%. Assume that there is a positive UCC balance remaining in the class after the sale. What is the present value of the lost CCA tax shield on the disposal of this new machine?

Question 2 options:

	$162,964
	$ 99,583
	$ 97,424
	$ 92,470

Question 3 (1 point)

Lampkin Corp. is reviewing an investment in a new product line. The cost of the new equipment to produce this new product will be $1,650,000. The equipment has a useful life of 12 years, but the project planning horizon is only seven years. The equipment will qualify for the 50% CCA rate and be eligible for full (100%) expensing in the year of acquisition (assume that the CCA writeoff happens at the end of the first year). At the end of seven years, the equipment is estimated to be worth $740,000, and at the end of 12 years it can be sold for scrap valued at $57,000. When the equipment is sold, assume that there will be a positive balance in UCC remaining. Revenues from the new product are expected to be $1,850,000 annually for the seven years. Related cost of goods sold and other operating costs will be $1,265,000 annually. Additional working capital is expected to be $250,000. The equipment will be built in a part of the existing building that Lampkin is currently leasing to an outside party. The remaining term of the lease is seven years, and the annual rental income received is $251,000.

The company has projected that with the introduction of the new product, sales are expected to decline for one of the existing products. It is estimated that sales of this other product will be lower by $257,000 for the first three years only. The gross profit margin on these sales is 55%. The company has an income tax rate of 28% and a cost of capital of 12%. What is the net present value (NPV) of this project?

Question 3 options:

	$375,295
	$262,208
	$17,769
	$562,554

Question 4 (1 point)

Niigaanii, a financial analyst with Telord Ltd., has been asked to determine the internal rate of return (IRR) for a proposal the company is considering. The company is a contract packaging manufacturer for a variety of customers. A potential new customer approached the company about a new fiveyear contract. Based on the customers requirements, Telord will have to upgrade its current machines at a cost of $528,000. If the proposal is accepted, Telord will have additional annual revenues of $380,000 for each of the next five years. Cost of goods sold is 34% of sales. The company pays income tax at 28%. Ignoring CCA and salvage, what is the IRR for this investment?

Question 4 options:

	12.22%
	4.08%
	21.03%
	38.01%

Question 5 (1 point)

Inara Ltd. is considering upgrading its computer hardware and software. The cost of this upgrade will be $625,000, and the upgrade will qualify for the 30% CCA rate. The equipment qualifies for the Accelerated Investment Incentive with 1.5 times CCA allowed in the year of acquisition. With this upgrade, the company expects to realize before-tax savings in personnel and other costs as follows: Year 1 $180,000; Year 2 $235,000; Year 3 $250,000; Year 4 $150,000. There is no salvage value for this investment. The companys income tax rate is 26% and its cost of capital is 12%. What is the payback period for this investment proposal?

Question 5 options:

	1.5 years
	2.0 years
	2.4 years
	3.1 years