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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 return is 16%
Required
1. Calculate the present value of CCA tax shield.
2. Explain why the CCA tax shield is consider a source of cash-inflow.
Formulate the problem of deciding how much of each product to make in the current week as a linear program.
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Both expenses and revenues are expected to remain approximately constant over the branch's 20-year life
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