Question
In: Economics
A company is purchasing a new equipment in Class 8 (20% CCA rate -- declining balance...
A company is purchasing a new equipment in Class 8 (20% CCA rate -- declining balance class, half year rule applicable) in 2019 for $33,000.
The machine is expected to result in annual revenue of $16,000 for each of the next five years and will be sold at the end of that time for an expected salvage value of $13,000.
Maintenance expenses are expected to be $1,400 for the first year and to increase by $200 per year for each successive year of operation.
A loan of $12,000 is obtained at 8% rate per year and the loan has to be paid back in five equal installments covering principal and interest.
The company has an effective tax rate of 40% and requires an after-tax MARR of 8%.
What is the present worth of the proposed purchase? Use the spread sheet method.
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
1. In 2018, ABC Corporation purchased a new photocopier (asset class 8) with a CCA rate...
1. In 2018, ABC Corporation purchased a new photocopier
(asset class 8) with a CCA rate of 20% for $5,000, as well as a new
truck (asset class 10) with a CCA rate of 30% for $40,000.
Calculate the total CCA for ABC Corporation for each of
the first three years. Show your
calculations.
2. ABC Corporation is a large retailer that has many stores in
Canada. Each location has a store manager who receives a fixed
salary regardless of...
1. In 2018, ABC Corporation purchased a new photocopier (asset class 8) with a CCA rate...
1. In 2018, ABC Corporation purchased a new photocopier
(asset class 8) with a CCA rate of 20% for $5,000, as well as a new
truck (asset class 10) with a CCA rate of 30% for $40,000.
* Calculate total CCA for ABC Corporation for each of
the first 3 years.( SHOW ALL CALCULATIONS)
The cost of an equipment is $300,000 and falls in asset Class 9 for CCA deprecation...
The cost of an equipment is $300,000 and falls in asset Class 9
for CCA deprecation purpose. The depreciation rate of Class 9
assets is 25%. You intend to sell the equipment in 5 years for a
salvage value of $40,000. At the time of sale, you still anticipate
having other assets in the give asset class. Your tax rate is 35%
and your discount rate is 14%. What is the present values of CCA
tax shield?
Given the following information and assuming a 20% CCA class, what is the NPV for this...
Given the following information and assuming a 20% CCA class,
what is the NPV for this project? Initial investment in fixed
assets = $800,000; initial investment in net working capital =
$200,000; life = four years; after-tax cost savings = $250,000 per
year; salvage value = $30,000; tax rate = 35%; discount rate =
16%.
Given the following information and assuming a 20% CCA class, what is the NPV for this...
Given the following information and assuming a 20% CCA class,
what is the NPV for this project? Initial investment in fixed
assets = $800,000; initial investment in net working capital =
$200,000; life = four years; after-tax cost savings = $250,000 per
year; salvage value = $30,000; tax rate = 35%; discount rate =
16%
A company is considering purchasing new equipment. The purchase of the equipment is expected to...
A company is considering purchasing new equipment. The purchase
of the equipment is
expected to generate after tax
savings of $12,600 each year for 8 years. The company can
borrow money at 6%. Assume annual
compounding.
Determine the present value of
the future cash inflows.
Hint: the $12,600 are your annuity payments
You have purchased $320,000 of computer equipment that is in a CCA Class 10 (Canada Revenue...
You have purchased $320,000 of computer equipment that is in a
CCA Class 10 (Canada Revenue Agency). Using the half-in-first-year
rule, how much depreciation would occur in year 3?
A proposed cost-saving device has an installed cost of $720,000. It is in Class 8 (CCA...
A proposed cost-saving device has an installed cost of $720,000.
It is in Class 8 (CCA rate = 20%) for CCA purposes. It will
actually function for five years, at which time it will have no
value. There are no working capital consequences from the
investment, and the tax rate is 35%.
a. What must the pre-tax cost savings be for us to
favour the investment? We require an 12% return. (Hint: This one is
a variation on the problem...
A proposed cost-saving device has an installed cost of $640,000. It is in Class 8 (CCA...
A proposed cost-saving device has an installed cost of $640,000.
It is in Class 8 (CCA rate = 20%) for CCA purposes. It will
actually function for five years, at which time it will have no
value. There are no working capital consequences from the
investment, and the tax rate is 35%.
a. What must the pre-tax cost savings be for us to
favour the investment? We require an 10% return. (Hint: This one is
a variation on the problem...
Swifty Company purchased equipment for $1008000 on January 1, 2020, and will use the double-declining-balance method...
Swifty Company purchased equipment for $1008000 on January 1,
2020, and will use the double-declining-balance method of
depreciation. It is estimated that the equipment will have a 3-year
life and a $43000 salvage value at the end of its useful life. The
amount of depreciation expense recognized in the year 2022 will
be
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