Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #1 - the PV of the initial cost, is: Multiple Choice $ 450,000 $-750,000 O $-800,000 O O $-550,000 Use the following information for Questions 42-50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #2 - the PV of the incremental, after-tax costs & revenues, is: Multiple Choice $-511,756 O O $-455,888 $-526,922 O O $-448,592 Use the following information for Questions 42 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #3 - the PV of the tax shield from CCA, is: Multiple Choice $123,897 $190,909 $176,331 $162,500 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #4 - the PV of salvage, is: Multiple Choice $74,931 $40,188 $68,558 $62,092 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #5 - the PV of the tax shield lost due to salvage, is: Multiple Choice $-16,558 $-14,712 $-10,369 $- 8,038 Use the following information for Questions 42 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #6 - the PV of the change in net working capital, is: Multiple Choice $-24,357 $-14,001 $-29,906 $-18,954 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The NPV of the total cost stream for the new ticket machines is: Multiple Choice $-912,556 $-1,076,267 $ -1,033,848 $-1,058,848 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct bid price we should submit is: Multiple Choice $19,205 per machine $19,670 per machine $18,365 per machine $20,558 per machine Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? In the capital budgeting problem you solved in the last few questions, what return would the company earn if the maximum price that TransLink is willing to pay is $16,000 per machine? Multiple Choice 8.48% 12.17% 10.81% 6.92% Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #1 - the PV of the initial cost, is: Multiple Choice $ 450,000 $-750,000 O $-800,000 O O $-550,000 Use the following information for Questions 42-50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #2 - the PV of the incremental, after-tax costs & revenues, is: Multiple Choice $-511,756 O O $-455,888 $-526,922 O O $-448,592 Use the following information for Questions 42 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #3 - the PV of the tax shield from CCA, is: Multiple Choice $123,897 $190,909 $176,331 $162,500 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #4 - the PV of salvage, is: Multiple Choice $74,931 $40,188 $68,558 $62,092 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #5 - the PV of the tax shield lost due to salvage, is: Multiple Choice $-16,558 $-14,712 $-10,369 $- 8,038 Use the following information for Questions 42 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct value to use for Step #6 - the PV of the change in net working capital, is: Multiple Choice $-24,357 $-14,001 $-29,906 $-18,954 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The NPV of the total cost stream for the new ticket machines is: Multiple Choice $-912,556 $-1,076,267 $ -1,033,848 $-1,058,848 Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? The correct bid price we should submit is: Multiple Choice $19,205 per machine $19,670 per machine $18,365 per machine $20,558 per machine Use the following information for Questions 42 - 50 Rick George, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase Thirty (30) new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, calculated using the Accelerated Investment Incentive method. You believe that you will be able to sell the new equipment for $100,000 at the end of the project. It will cost you $5,000 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firm's tax rate is 40% and the firm's cost of capital is 20%. How much should we bid to produce each new ticketing machine? In the capital budgeting problem you solved in the last few questions, what return would the company earn if the maximum price that TransLink is willing to pay is $16,000 per machine? Multiple Choice 8.48% 12.17% 10.81% 6.92%