Solution-Calculate the cca tax shield for this investment

Calculate the cca tax shield for this investment

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Reference no: EM133064640

Question - A company is considering the replacement of some technologically obsolete machinery with purchase of a new machine for $72000. The older machine can be expected to perform the required operation for another 10 years. The older machine has a salvage value of $9000. The new machine with the lastest in technological advances will perform essentially the same operations as the older machine but will effect cost savings of $17500 per year in labour and materials. The new machine is also estimate to last for 10 year. At which time it could be salvaged for $11500,. To install the new machine will cost $7000. Signs for fields has a tax rate of 30%, and its cost of capital is 15%. For tax purpose the company its capital cost allowance is 20%.

Required -

a. Calculate the initial cash flow of the replacement investment.

b. Calculate the present value of the annual after-tax cost saving (pv of cpt).

c. Calculate the CCA tax shield for this investment.

d. Calculate the present value of the terminal non-operating cash flow.

e. Calculate the NPV of this investment and decide whether or not signs for fields machinery Ltd purchase the new machine.

Reference no: EM133064640

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Calculate the cca tax shield for this investment

Reference no: EM133064640

Reference no: EM133064640

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