A proposed cost-saving device has an installed cost of $650,000. It is in Class 8 (CCA...
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A proposed cost-saving device has an installed cost of $650,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $ b. Suppose the device will be worth $93,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $ A proposed cost-saving device has an installed cost of $650,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $ b. Suppose the device will be worth $93,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $
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Answer rating: 100% (QA)
a To determine the pretax cost savings required to favor the investment we need to calculate the minimum annual cash inflow necessary to achieve an 11 ... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
Posted Date:
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