Repeat Practice Problem 41 assuming that the project would generate annual revenue of $70,000 and annual costs

Question:

Repeat 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 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.


Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Introduction To Corporate Finance

ISBN: 9781118300763

3rd Edition

Authors: Laurence Booth, Sean Cleary

Question Posted: