1) Best Darn Glasses (BDR) is thinking of investing in a sandblasting machine for its glassware. It provides you with the following information: The initial investment for this project would be $235,000 in specialized machinery. According to CRA, this machine falls into a CCA class of 8%. There is the possibility of salvage of $6,000, although it’s not for sure. The risk-adjusted cost of capital is 12% and the company’s tax rate is 25%. Calculate the CCA tax shield under both scenarios – with and without salvage.
2) Using the information from above, calculate the project’s NPV if the following information were also provided to you: Cost of maintenance of the sandblasting machine is $35,000 per year, and the machine will only last 10 years. The salvage value, at that point, will be zero. The company’s revenues will be $170,000 per year with direct production costs of $27,000.
Please show all calculations and workings
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