Question: Use the table for the question(s) below. Year 0 Year 1 Year 2 Year 3 Revenues 400,000 400,000 400,000 Cost of Goods Sold 140,000 140,000
Use the table for the question(s) below.
| Year 0 | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|
| Revenues | 400,000 | 400,000 | 400,000 | |
| Cost of Goods Sold | 140,000 | 140,000 | 140,000 | |
| =EBIT | 260,000 | 260,000 | 260,000 | |
| Taxes (35%) | 91,000 | 91,000 | 91,000 | |
| =Unlevered net income | 169,000 | 169,000 | 169,000 | |
| Additions to Net Working Capital | 11,000 | 11,000 | 11,000 | |
| Capital Expenditures | 300,000 | |||
| =Free Cash Fow | 158,000 | 158,000 | 158,000 |
Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. The cars belong to asset class 10 and have a capital cost allowance (CCA) rate of 30%. The cars will be sold at the end of 3 years for $150,000. What is the present value of the lost CCA tax shields of the project, given that the cost of capital is 10%, and the company faces a marginal tax rate of 25%?
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