A proposed cost-saving device has an installed cost of $530,000. It is in Class 8 (CCA rate = 20%) for CCA purposes. It willactually function for five years, at which time it will have no value. There are no working capital consequences from theinvestment, and the tax rate is 35%.a. What must the pre-tax cost savings be for us to favour the investment? We require an 12% return. (Hint: This one is avariation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2decimal places. Omit $ sign in your response.)Cost savings171202.92b. Suppose the device will be worth $77,000 in salvage (before taxes). How does this change your answer? (Do not roundyour intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)Cost savings$164798.1

Capital Cost Allowance:The capital cost allowance (CCA) is a deduction from an individual's or…

Answered: A proposed cost-saving device has an…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A proposed cost-saving device has an installed cost of $530,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 12% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings b. Suppose the device will be worth $77,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings
A proposed cost-saving device has an installed cost of $560,000. It is in Class 8 (CCA rate = 20%) for CCA purposes It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a What must the pre-tax cost savings be for us to favour the investment? We require an 12% return. (Hint This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal pleces. Omit S sign in your response.) Cost savings b. Suppose the device will be worth $80.000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal pieces. Omit S sign in your response.) Cost savings
S A proposed cost-saving device has an installed cost of $590,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings-pe for us to favour the investment? We require an 12% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $122148.97 b. Suppose the device will be worth $83,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $
A proposed cost-saving device has an installed cost of $530,000. It is in Class 8 (CCA rate-20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35% a What must the pre-tax cost savings be for us to favour the investment? We require an 12% return (Hint This one is a variation on the problem of setting a bid price) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response) Cost savings $ 171202.92 b. Suppose the device will be worth $77,000 in salvage (before taxes) How does this change your answer? (Do not round your intermediate calculations, Round the final answer to 2 decimal places. Omit $ sign in your response) Cost savings $1647981
Your boss asked you to evaluate a project with an infinite life. Sales and costs project to $1,000 and $500 per year, respectively. (Assume sales and costs occur at the end of the year [i.e., profit of $500 at the end of year one]). There is no depreciation and the tax rate is 30 percent. The required rate of return is 10 percent. If the project costs $3,000, what is the NPV?
JBL Inc. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $ 650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. JBL Inc. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108, 226.89 b. $ 137, 743.32 c. $167, 259.75 d. $196, 776.18 e. $216, 453.79
(Ignore income taxes in this problem.) Your Company is considering an investment in a project that will have a three-year life. The project will provide a 4% internal rate of return and is expected to have a $40,000 cash inflow the first year and a $0 cash inflow in the second year, and $50,000 cash inflow in the third year. What investment is required in the project?
Consider a hypothetical economy that has NO tax.ABC Ltd. is considering investing in a 2-year project which is expected to generate the followingyear-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the projectis 10%. The initial cost of the project is $200 million.(a) Compute the profit and NPV of the project. (b) Based on the answer of part (a), should the project be accepted? Explain.(c) ABC’s cut-off period is 2 years. Compute the PI and Payback of the project. Based on thesetwo methods, should ABC accept the project?(d) Write down the numerical formula for computing the IRR of this project. What is theminimum IRR value that would make this project acceptable? Explain. (e) Given the recommendations based on the four decision rules above, which project shouldABC Ltd. accept? (f) Now suppose that of the $200m initial expenditure, $50m was used for the purchase of amachine that has an estimated economic life of four years. The machine will be…
An investment has an initial cost of $3.2 million. This investment will be depreciated by $900,000 a year over the 3-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 10.5 percent? Why or why not? Net Income $211.700 186.400 Year 165,500 O Yes; because the AAR is 10.5 percent O Yes; because the AAR is less than 10.5 percent O Yes; because the AAR is greater than 10.5 percent O No; because the AAR is greater than 10.5 percent O No; because the AAR is less than 10.5 percent
A project requires an initial investment of $6 million and will yield operating cash flows of $1.5 million per year for the next 10 years. At the end of 10 years, the project’s assets can be divested for $350,000. The marginal tax rate is 35%, and the CCA rate is 30%. If the required rate of return is 15%, what is the present value of the CCA tax shields? Select one: a. $1,329,042.73 b. $1,308,432.91 c. $1,288,508.90 d. $1,210,537.92 e. $1,049,551.30
You are considering a new product launch. The project will cost $1,950,000, have a 4-year life, and have no salvage value; depreciation is straight-line to 0. Sales are projected at 180 units per year; price per unit will be $24,000; variable cost per unit will be $15,000; and fixed costs will be $540,000 per year. The required return on the project is 10%, and the relevant tax rate is 34%. d-2. What is the degree of operating leverage at the accounting break-even point? (Round the final answer to 4 decimal places.) Note: To calculate the degree of operating leverage in this requirement, you need to use the OCF base. If you use depreciation, your answer will be marked incorrectly. Give typing answer with explanation and conclusion
A proposed project is expected to generate returns of $50,000 per year for each of the next four years. If the project will cost $145,685 and taxes are ignored, what is the internal rate of the return (IRR) for the proposed project?. O 12% O 16% O 14% O Less than 10% Hi in

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