Question: Squally Corp. is considering a project that requires an initial investment of $350,000; the project life is three years; before-tax cost savings are $155,000 per

Squally Corp. is considering a project that requires an initial investment of $350,000; the project life is three years; before-tax cost savings are $155,000 per year; salvage value will be $18,000 when the fixed assets are sold in year 3; the tax rate is 27%; and the discount rate is 10%. 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? (1 mark)

b) What are cash flows from assets in years 0-3? (2 mark)

c) What is the net present value of the proposed project? Should Squally Corp. accept the project? (1 mark)

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