Question
Sunset Ltd. purchased new machinery worth $820,000. The machine will allow the company to increase production by 35,000 units per year at $39 per unit.
Sunset Ltd. purchased new machinery worth $820,000. The machine will allow the company to increase production by 35,000 units per year at $39 per unit. Variable costs per unit are $15 and the fixed costs per year are $200,000. The machinery is valued to be worth $59,000 after 5 years. Depreciation using the straight-line method. The required rate of return on the project using this machinery is 18% and a marginal tax rate of 40% is applicable to the company. (a) Develop the Pro-Forma Statement of Comprehensive Income for the next year. (8 points) (b) If the CCA rate applicable on the machinery is 30%, compute the present value of the CCA tax shield for the machinery. (5 points)
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