Question: Otterly Inc. is considering a project that requires an initial investment of $300,000; the project life is three years; before-tax cost savings are $150,000 per

Otterly Inc. is considering a project that requires an initial investment of $300,000;

the project life is three years; before-tax cost savings are $150,000 per year; salvage value will be $30,000 when the fixed assets are sold in year 3; the tax rate is 27%; and the discount rate is 12%. Assume there is no change in net working capital, and assume a CCA rate of 20%.

a) What is the present value of the CCA tax shield in year 0?

b) What are cash flows from assets in years 0-3?

c) What is the net present value of the proposed project? Should Otterly Inc. accept the project?

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