Reference no: EM133091697

Question 1 - We are considering the purchase of a $560,000 computed based inventory management system. It is in class 10 with a CCA rate of 30 per cent. The computer has a four-year life. It will be worth $30,000 at that time. The system would save us $60,000 pre-tax in inventory-related cost. The relevant tax rate is 38%. Because the new setup is more efficient than our existing one, we would be able to carry less total inventory and thus free $45,000 in net working capital.

Required -

1. Calculate the present value of CCA tax shield.

2. Explain why the CCA tax shield is consider a source of cash-inflow.

Question 2 - Financial management decisions are made such that financial goals are to be achieved. A Company that fails to make these decisions may end up becoming part of history. This is the same sentiments shared by the likes of Nokia.

Required - To develop an explicit financial plan, management must make key financial decisions. Identify and discuss Three basic Financial management decision areas required for every Organization aspiring to stay in business.

Question 3 - Suppose your firm is considering buying a van costing $85,000. What is the Undepreciated capital cost (UCC) for the van after Six years. Note: the van falls in class 10 with a 30 percent CCA rate. Use the tabular approach when calculating the UCC after Six years.

a) Calculate the UCC at the end of year 6

b) If the Van is sold at $4500 at the end of 6 years, what is the tax implication? what name is assigned to this tax implication?

c) If the Van is sold at $55,000 at the end of 6 years, what is the tax implication? what name is assigned to this tax implication?

Question 4 - John recently retired at the age of 68 years. John's net worth is $500,000 and the fund is available for investment. John wants moderate (low) capital growth, extensive capital preservation and income generation to keep up with day-to-day expenses. John wants moderate risk and since he is retired is now on a lower tax bracket.

Required - Propose and discuss extensively an asset allocation policy for John. Consider the following asset classes; money market highly liquid investment, cyclical stocks, defensive stocks, conservative mutual funds