What is the present value of the cca tax shield

Reference no: EM13196072

The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next five years. The necessary foundry and machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax purposes. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate.

a. What is the depreciation tax shield in the third year for this project?

b. What is the present value of the CCA tax shield?

c. What is the minimum bid price the firm should set as a sale price for the blocks if the firm were in a bidding situation?

d. Assume that management believes that auto restorers will pay $3,000 retail per engine block. What is the NPV of this project?

Reference no: EM13196072

Questions Cloud

Violating the counterfeit access device : Sally is charged with violating the Counterfeit Access Device and Computer Fraud and Abuse Act (CFAA). Crime under the CFAA involves

Find the quadratic equation in vertex : a baseball is hit 3 feet above home plate. It will reach its highest point of 83 feet 125 feet from home plate.

Changes in atmosphere in jefferson''s administration : One of the significant changes in atmosphere in Jefferson's administration was what

State small amount of base to an acidic buffer solution : Explain why the addition of a small amount of base to an acidic buffer solution causes only a small change in the pH of the buffer solution.

What is the present value of the cca tax shield : What is the depreciation tax shield in the third year for this project and what is the present value of the CCA tax shield - what is the minimum bid price the firm should set as a sale price for the blocks if the firm were in a bidding situation?

Create a modern rite of passage for an adolescent girl : Create a modern rite of passage for an adolescent girl and an adolescent boy that addresses the social demands facing adolescents today.

Identify a painting by picasso before the field trip : Based on P(students identifying Picasso painting) from part (a), predict how many of the 300 students would be able to identify a painting by Picasso before the field trip?

Compute the cash break-even point : Compute the NPV. Assume a required return of 15% and a tax rate of 30% and compute the cash break-even point.

Define the titration of acetic acid with sodium hydroxide : For the titration of 40.0 mL of 0.250 M acetic acid with 0.200 M sodium hydroxide, determine the pH when

User Account

All Pages