Question
You are considering a project that will supply an automobile production facility with 35,000 tonnes of machine screws annually for five years. To get the
You are considering a project that will supply an automobile production facility with 35,000 tonnes of machine screws annually for five years. To get the project started, you will need an initial $1,500,000 investment in threading equipment. The project will last for five years. The accounting department estimates that annual fixed costs will be $300,000 and that variable costs should be $200 per tonne. The CCA rate for treading equipment is 20%. Accounting estimates a salvage value of $500,000 after costs of dismantling. The marketing department estimates that the auto makers will accept the contract at a selling price of $230 per tonne. The engineering department estimates you will need an initial net working capital investment of $450,000. You require a 13% return and face a marginal tax rate of 38% on this project.
a. What is the NPV for this project? Should you pursue this project?
PLEASE DO NOT USE EXCEL! I can do it in excel but there is also the half rule involved with the CCA. Do I have to set up a CCA chart and then calculate from there. I cant use the formula for OCF=((P-v)Q-FC)(1-T)+(T)(D) because it is not straight line. So do I have to do the CCA chart (below) for the five years or can I use PVCCATS=PVCCATS = C0dT(d+k)1+0.5k1+k-SdT(d+k)1(1+k)N
Year | Beg UCC | CCA= (Beg UCC x 0.2) | End UCC | CCATS= (CCA x 0.4) |
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