An engineering project involves the purchase of a capital asset with first cost of $100 000,...

An engineering project involves the purchase of a capital asset with first cost of $100 000, operating costs of $5 000 per year and a service life of 10 years. The expected revenue is $20 000 per year. If the CCA rate is 25%, interest rate is 10% and the corporate tax rate is 33%, what is the project's present worth?

Solutions

Expert Solution

The PW of the capital costs is:

PW = CTF * 100,000
= (1 – (0.33*0.25*(1+0.1/2))/((0.1+0.25)*(1+0.1))) * 100,000
= 0.755 * 100,000
= $75,500

Present Worth of the project:

PW = 20,000(P/A,10%,10)*(1-0.33) - 77,500 - 5,000(P/A,10%,10)*(1-0.33)
= 20,000 * 6.1445 * 0.67 - 77,500 - 5,000 * 6.1445 *0.67
= 82,337 - 75,500 - 20,584
= -$13,747

So,it’s not a good project.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Evaluation of an engineering project involves the following constraints ?

Evaluation of an engineering project involves the following constraints ?A) financial, environmental, social and political constraints.B) technical and financial constraints.C) technological and social constraints.D) time and money constraints. E) budget and time constraints.

Project cost $100 000 Estimated life 5 years Estimated residual value $20 000 Annual Net Cash...

Project cost $100 000 Estimated life 5 years Estimated residual value $20 000 Annual Net Cash flow $30 000 Required rate of return 10% Given the data above, calculate the internal rate of return (IRR). (not using excel)

Eddy Ltd is considering investing in a project at a cost of N$3 000 000. The...

Eddy Ltd is considering investing in a project at a cost of N$3 000 000. The estimated economic life of the project is 5 years. The company will use the straight-line method to depreciate the cost of the project over 5 years. The company estimates that sales will amount to 240 000 units per year at an estimated selling price of N$40 per unit. The company expects to incur fixed overheads, excluding depreciation of N$300 000 per year and variable...

A project cost $650 and has cash flows of $150 for the first year, $100 for...

A project cost $650 and has cash flows of $150 for the first year, $100 for the second year, and $80 in each of the subsequent years. What is the payback period of the project?

Red Bear Ltd. purchased several intangible assets, as follows: Asset Purchase Cost Asset Purchase Cost Licence...

Red Bear Ltd. purchased several intangible assets, as follows: Asset Purchase Cost Asset Purchase Cost Licence $76,000 Patent $173,000 Customer list 62,700 Copyright 252,000 The following information is also available: ● In addition to the costs listed above, there were legal fees of $15,000 associated with the licence acquisitions. The licences are valid in perpetuity, and sales of the products produced under the licences have been strong and are expected to continue at the same level for many decades. ●...

Suppose a company wants to decide whether to lease or purchase an asset. Purchase: The capital...

Suppose a company wants to decide whether to lease or purchase an asset. Purchase: The capital cost required to purchase the asset is $1,000,000 (at time zero) with a salvage value of $500,000 at the end of the 5th year. The purchased asset can be depreciated based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS (https://www.irs.gov/publications/p946) over six years (from year 0 to year 5). Lease: The asset can be leased for 5 years...

Your company is evaluating a project that will require the purchase of an asset with a...

Your company is evaluating a project that will require the purchase of an asset with a price of $16,000 the shipping will cost an additional $1,500 and installation will be $850. The new project will require an increase in inventory of $300, an increase in A/R of $200 and an increase in A/P of $100 in the initial period. Assuming tax rate of 30%, what is the initial outlay, in year 0, for this project?

Choose an engineering project that involves both hydrology and hydraulics. In one paragraph, analyze ways in...

Choose an engineering project that involves both hydrology and hydraulics. In one paragraph, analyze ways in which the hydrology influences the hydraulics, and ways hydraulics influences the hydrology.

Equipment: The project involves the purchase of a new machine. The machine costs $500,000 is depreciable...

Equipment: The project involves the purchase of a new machine. The machine costs $500,000 is depreciable over 5 years. The machine requires a new building which would cost another $250,000 (we assume that the construction of the building takes place at t=0). The building is also depreciable over 5 years. The building will occupy a field bought 2 years ago for $200,000. The best other use for the field is as a parking lot for employees. The post-tax present value...

A company’s capital consists of 100 000 ordinary shares issued at $2 and paid to $1...

A company’s capital consists of 100 000 ordinary shares issued at $2 and paid to $1 per share. On 1 September, a first call of 50c was made on the ordinary shares. By 30 September, the call money received amounted to $45 000. No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited. On 15 November, the forfeited shares were reissued as paid to $1.20 for a payment of $1 per share....

Subjects