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A company is considering a 7-year project which will require the purchase of $1.4 million in...

A company is considering a 7-year project which will require the purchase of $1.4 million in new equipment. The equipment belongs in a 20% CCA class. The company expects to sell the equipment at the end of the project for 20% of its original cost. Annual sales are estimated at $1.2 million. Net working capital equal to 20% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%. What is the present value of the CCA tax shield for this project?

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Answer #1

Given:initial cost (c) = 1400000,CCA rate= 20%…plz see image for explanation.

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