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Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset...

Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.7 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,630,000 in annual sales, with costs of $832,000. If the tax rate is 35%, what is the OCF for each year of this project?

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Expert Solution

OCF for:

Year 1=$1,362,950

Year 2=$1,498,925

Year 3=$1,399,857.5

Salvage value realised at end of the year after deducting tax will be considered while calculating the terminal cash flows and hence not considered while calculating OCF for the 3 rd year

jeff jeffy answered 2 years ago
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