GG Inc. has a project that requires purchases of capital assets costing $40,000 and additional raw material inventory of $2,000. Shipping and installation costs are $1,500. GG Inc. estimated that the project would generate an annual operating after-tax cash flow of $5,600 for six years at each year end. At the end of the project, the assets can be sold for $4,000, while the additional inventory that was tied up will be released. The assets are in asset class 9, which has a CCA rate of 30 percent. The tax rate = 40%, and k = 15%. The ending UCC = $8,469. Calculate PV of CCA tax shield by formula. Calculate the NPV of the project if the asset class is closed on termination of the project. Decide whether or not GG Inc. should accept the project.
Answer to relevant QuestionsRepeat Practice Problem 41 assuming that the project would generate annual revenue of $70,000 and annual costs of $40,000 for six years. Also, assume the asset class will remain open.GG Inc. has a project that requires ...a. Describe how CCA expenses change through the life of a project.b. Given C0 = $250,000; CCA rate = 0.2%; tax rate = 40%; and year 2 operating income = $150,000, calculate the cash flow in year 2.GG Inc. is now considering replacing some old equipment. The market price of the old equipment is $50,000 and the salvage value at the end of five years is $15,000. The new equipment will cost $100,000 and could be sold at ...The Bynum Private Equity group has just made a tender offer for, at most, 60 percent of Vendall Company. Vendall has 1,000 shares outstanding. Mr. VanDuun is a shareholder of Vendall and has tendered his shares. For each ...Carla is the CEO of The Superior Sausage Company (a Canadian firm, listed on the Toronto Stock Exchange) and believes that the best way for the company to grow is through acquisitions. She has identified a likely target, ...
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