Reference no: EM132589247

Question 1. Salter Inc. (SI) is reviewing an investment in a new plant and equipment. The plant will be built on vacant land that the company currently owns. SI originally purchased the land for $3,000,000 three years ago, and today, the land could be sold for $4,500,000. SI's income tax rate is 25%.

Which of the following represents the amount that should be included in the net present value (NPV) analysis of this project with respect to the land?

a) $2,812,500

b) $3,000,000

c) $4,125,000

d) $4,312,500

Question 2. Solar Energy Corp. (SEC) is reviewing a possible investment in a new plant for a new product line. The new product is expected to have a life of 10 years, which is the project timeline. SEC has decided to use the NPV method to analyze this project. The new plant will cost $10,000,000 to build and will last 25 years, at which time it will be worth $3,000,000. At the end of 10 years, the building could be sold for $7,500,000. The building qualifies for CCA at the rate of 10%, and there are no disposals of assets in the first year of the project. Assume that there are other assets remaining in the class and that the balance in the CCA account will be positive after the disposal. SEC's income tax rate is 27% and its cost of capital is 12% for this project.

Which of the following represents the net amount included in the project's NPV for the initial investment in the building, net of the present value of its salvage value and tax shields?

a) -$8,450,364

b) -$7,991,098

c) -$6,720,036

d) -$2,258,929