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Your company operates a ship loading terminal in Victoria, BC. The estimated after tax operating costs of this terminal for the next three years are
Your company operates a ship loading terminal in Victoria, BC. The estimated after tax operating costs of this terminal for the next three years are given below: End of year After tax operating costs $850,000 $950,000 $810,000 An engineering consultant recommended that the material handling equipment at the terminal be replaced at a cost of $3,200,000 in order to reduce operating costs. The yearly operating costs of the terminal using the new equipment would be $200,000. The capital cost allowance rate for the material handling equipment is 30%. Salvage values are zero. MARR (the minimum attractive rate of return) for your company is 12%. The income tax rate is 25%. The terminal is intended to be used for three years (project life) Determine: a) the equivalent uniform annual cost of the existing equipment for the next 3 years(5 marks) b) the capital cost allowance and the terminal loss of the new equipment in the final (third) year of the operation (5marks) c) the present value of the after tax cash flow using the new equipment (include capital expenditure and capital cost allowances) (12 marks) (3 marks) d) whether or not the consultant's recommendation is justified (economically)
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