Question

Consider the following investment opportunity: Initial investment: 25,000 Cash Flow Year 1:     3,000 Cash Flow Year...

Consider the following investment opportunity:

Initial investment: 25,000

Cash Flow Year 1:     3,000

Cash Flow Year 2:     8,000

Cash Flow Year 3:   13,000

Cash Flow Year 4:     5,000

Cash Flow Year 5:     3,000

What is the CCA deduction (or expense) for year 2?

And the CCA tax shield for year 4?

The asset belongs to an asset class with a CCA depreciation rate of 25%. The company’s tax rate is 30%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Part A

CCA deduction for year 2 is the beginning value of the initial investment at year 2 * CCA depreciation rate.

The beginning value of the initial investment in year 2 is the beginning value of the initial investment at year 1 - CCA depreciation rate.
The beginning value of the initial investment at year 1= 25,000
CCA rate = 25%
Ending value of investment = 18,750

The beginning value of the initial investment at year 2 = 18,750
CCA rate = 25%
Therefore, CCA deduction for year 2 is 18,750 * 25% = 4687.5

Part B

Tax shield for year 4 = CCA expense * tax rate

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Champlain Transportation Inc. is considering a five-year project that requires an initial capital investment of $1...
Champlain Transportation Inc. is considering a five-year project that requires an initial capital investment of $1 million. The project is expected to generate operating revenue of $500,000 per year, and the associated operating expenses are estimated at $250,000 per year. The capital asset belongs to asset class 9, which has a CCA rate of 30 percent. The firm’s tax rate is 35 percent. What is the after-tax cash flow for year 1? $110,000 $215,000 $302,500 $312,500
11. Champlain Transportation Inc. is considering a five-year project that requires an initial capital investment of...
11. Champlain Transportation Inc. is considering a five-year project that requires an initial capital investment of $1 million. The project is expected to generate operating revenue of $500,000 per year, and the associated operating expenses are estimated at $250,000 per year. The capital asset belongs to asset class 9, which has a CCA rate of 30 percent. The firm’s tax rate is 35 percent. What is the after-tax cash flow for year 1? a. $110,000 b. $215,000 c. $302,500 d....
A company is considering a new four-year project with an initial equipment investment of $72,001. The...
A company is considering a new four-year project with an initial equipment investment of $72,001. The equipment belongs in a 30% CCA class and will be worthless at the end of the project. Annual cash sales are estimated at $136,800 with annual cash costs of $87,901. The tax rate is 34%. What is the project cash flow in the second year? options: $30,900 $28,506 $38,516 $20,394 $41,406
Determine the Investment cash flow, Operating cash flow, and Net cash flow based on the following...
Determine the Investment cash flow, Operating cash flow, and Net cash flow based on the following assumptions. Initial investment of $120,000 to purchase and install a piece of equipment for an expansion project, 5 year straight line depreciation, $10,000 sale of equipment at the end of five years. The new equipment will increase pre tax revenue by $100,000 annually and increase operating expenses by $25,000 annually. The tax rate is 30%
Consider the following investment opportunity: Initial cost beginning at time 0 = $15,000 Annual revenues beginning...
Consider the following investment opportunity: Initial cost beginning at time 0 = $15,000 Annual revenues beginning at time 1 = $20,000 Annual operating costs (not including depreciation) = $13,000 Annual depreciation = $3,000 Tax rate = 40% Expected life of investment = 5 years What is the IRR of this investment? Round answer to the tenth place. __% What is the NPV of this investment? Round answer to the ones place. Do not enter commas. Enter negative numbers with a...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be an investment of $50 million. The project is expected to generate a project cash flow of $5 million for year 1, and the firm expects project cash flows to increase by 4% per year over the life of the project. The project will run for 20 years, and the firm has a cost of capital of 11%. What is the NPV of this proposed...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be an investment of $50 million. The project is expected to generate a project cash flow of $6 million for year 1, and the firm expects project cash flows to increase by 4% per year over the life of the project. The project will run for 20 years, and the firm has a cost of capital of 12%. What is the NPV of this proposed...
11. The Ogden Corporation makes an Investment of $25,000, which yields the following cash flows: Year...
11. The Ogden Corporation makes an Investment of $25,000, which yields the following cash flows: Year Cash Flow 1 $5,000 2 $5,000 3 $8,000 4 $9,000 5 $10,000 a. What is the present value with a 9 percent discount rate (cost of capita) b. What is the internal rate of return (IRR)? c. In this problem would you make the same decision in parts a and b? pls help me with formula.
Assume the following information relating to an investment opportunity: Initial cost = $20,000,000 (all depreciable) Economic...
Assume the following information relating to an investment opportunity: Initial cost = $20,000,000 (all depreciable) Economic life of project = 4 years Depreciation by the straight-line method Units sold/year = 1,000,000 Product price = $25/unit Product variable cost = $15/unit Fixed costs of operations (not including depreciation) = $1,000,000/year Tax rate = 30% Required return = 13% What is the annual net cash flow for this opportunity?
3.2 The following events are assumed to take place at time 1. Determine the cash flow...
3.2 The following events are assumed to take place at time 1. Determine the cash flow for investment evaluation purposes. The tax rate is 0.35. Credit sales $40,000 Cash sales 100,000 Out-of-pocket expenses 75,000 Income taxes 9,800 (reflects the $7,000 interest expense tax shield and the $30,000 depreciation) Depreciation (accounting) 20,000 Depreciation (tax) 30,000 Change in net working capital (increase) 8,000 (includes $28,000 of accounts receivable that only costs $20,000 incrementally) Interest expense 7,000 Principal payment 16,000
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT