Calculate the cca allowance anfd the pv of tax shield , Financial Management

Assignment Help:

Home Inc. is considering buying a new piece of equipment, which will cost $715,000 and has an economic life of 5 years, in order to produce a new line of product.  The company believes they can sell 25,000 units of this new product per year at $130 per unit in each of next 5 years.  The unit variable cost is $110 and total fixed costs (excluding CCA) are $195,000 per year.

The CCA rate for the new equipment is 30% and Home Inc. is going to claim the maximum CCA in each of the next 5 years.

Home Inc. needs to invest $140,000 in net working capital up front which will be fully recovered at the end of 5 years.

The equipment is estimated to be sold at its UCC value at the end of 5 years.

The discount rate is 15% and the tax rate is 35%.

Requirements: Show your calculation

a. Calculate the CCA allowance and ending UCC in each of the 5 years.

b. Calculate the net income and operating cash flow of this new product for each of the 5 years.

c. Calculate the initial investment outlay.

d. Calculate the PV of tax shield on CCA.

e. Determine whether Home Inc. should invest in the new equipment using NPV as the evaluation method.

 


Related Discussions:- Calculate the cca allowance anfd the pv of tax shield

Describe the dividend yield method, Q. Describe the Dividend Yield Method? ...

Q. Describe the Dividend Yield Method? Dividend Yield Method: - This process is based on the assumption that when an investor invests in the equity shares of a company he expec

Seed financing, It's a small amount of money which is used for initial mark...

It's a small amount of money which is used for initial market research or product development for a new venture.

Simple average of the outcomes - time constraint, 1. Your welfare depends o...

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

Calculate the changes in the margin account, Suppose today's settlement pri...

Suppose today's settlement price on a CME DM futures contract is $0.6080/DM. You comprise a short position in one contract. Your margin account at present has a balance of $1,700.

Analyze the corporate financial statements, You are currently an Analyst wo...

You are currently an Analyst working for a finance publication firm and as part of your responsibilities; you are required to provide a monthly forecast and analysis of certain com

Debt financing in capital structure, Net Income approach says that a raise ...

Net Income approach says that a raise in the proportion of debt financing in capital structure results in an increase in the proportion of a cheaper source of funds. This in turn r

Market segmentation of the term structure of interest rates, Define the mar...

Define the market segmentation of the term structure of interest rates. Market segmentation: And also the investors’ expectations regarding future interest rates and thei

Determine the concept of cash flow to shareholders, Does financial leverage...

Does financial leverage (debt) have any impact on the Free Cash Flow, on the Cash Flow to Shareholders, on the growth of the company and on the value of the shares? Debt has no

Explain main drivers for changing to ipsas, Question: PART A With th...

Question: PART A With the view to modernise its accounting system Government is considering adopting International Public Sector Accounting Standards (IPSAS) so as to maxim

Expalin npv decision rule in basril plc, The NPV decision rule needs that a...

The NPV decision rule needs that a company invest in all projects that have a positive net present value. This presumes that sufficient funds are available for all incremental proj

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd