Question

A 5-year project requires a $300,000 investment in a machine that is expected to worth $50,000 when the project ends. Operating expenses are expected to be $75,000 in the first year and are expected to increase 3% per year over the life of the project. The appropriate discount rate is 8%, the company’s tax rate is 20%, and the CCA rate is 30%. What is the present value of the CCA tax shield? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.)

PVCCATS=(IdTcd+k) (1+.5k1+k)− (SndTcd+k) (1(1+k)n)PVCCATS=IdTcd+k 1+.5k1+k- SndTcd+k 1(1+k)n

Answer 1