Question

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%

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

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 $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 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 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 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 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 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 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 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 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

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