A company is considering the purchase of a major piece of equipment for its manufacturing plant. The project would cost $22m in initial investment and would result in cost savings, before tax, of $3.25m per year for five years.

The equipment could be sold for $4.5m at the end of the five years. The equipment would also result in an increase in NWC of $500,000, which will be recovered at the end of the project.

The company’s CCA rate is 25% and the corporate tax rate is 34%.

The company's WACC is 9.39%

Calculate PVCCATs using the Tax Shield Approach.

Answer rating: 100% (QA)

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