Question 2 ( 3 points) The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of 3 years. The machine costs $30,000 to buy and can be sold for $5,000 after 3 years. The machine falls under the asset class using the straight-line depreciation method for the CCA tax shield. The cane manufacturing machine will generate sales of 2,000 canes per year from year 1 through year 3 . The price per cane that Sisyphean will charge its customers is $18 and is to remain constant. The manufacturing cost will be $9 per cane. The increase in manufacturing capacity will require an initial investment in net working capital of $8,000 which will be recovered at the end of year 3 . The corporate tax rate is 25% and Sisyphean's cost of capital is 10%. a. (1 mark) Based on straight-line depreciation method, what is the CCA tax shield per year of the machine over year 1 to year 3 ? b. (0.5 mark) What is the after-tax incremental earnings of the machine per year over year 1 to year 3 ? c. (0.5 mark) What is the free cash flows of the machine in year 0 (i.e., the initial cash outlay)? Use positive numbers for cash inflows and negative numbers for cash outflows. d. (1 mark) What is the NPV of the machine? Round your answers to the nearest dollars (i.e., zero decimal places). Show your work (e.g., Excel functions, formulas, and numerical inputs) to earn partial marks. Question 2 ( 3 points) The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of 3 years. The machine costs $30,000 to buy and can be sold for $5,000 after 3 years. The machine falls under the asset class using the straight-line depreciation method for the CCA tax shield. The cane manufacturing machine will generate sales of 2,000 canes per year from year 1 through year 3 . The price per cane that Sisyphean will charge its customers is $18 and is to remain constant. The manufacturing cost will be $9 per cane. The increase in manufacturing capacity will require an initial investment in net working capital of $8,000 which will be recovered at the end of year 3 . The corporate tax rate is 25% and Sisyphean's cost of capital is 10%. a. (1 mark) Based on straight-line depreciation method, what is the CCA tax shield per year of the machine over year 1 to year 3 ? b. (0.5 mark) What is the after-tax incremental earnings of the machine per year over year 1 to year 3 ? c. (0.5 mark) What is the free cash flows of the machine in year 0 (i.e., the initial cash outlay)? Use positive numbers for cash inflows and negative numbers for cash outflows. d. (1 mark) What is the NPV of the machine? Round your answers to the nearest dollars (i.e., zero decimal places). Show your work (e.g., Excel functions, formulas, and numerical inputs) to earn partial marks
