measure the initial investment outlay, Financial Accounting

Assignment Help:

Home Inc. is considering buying a new piece of equipment, which will cost $715,000 and has an economic life of 5 years, in order to make a new line of product.  The company supposes they can sell 25,000 units of this new product per year at $130 per unit in every of next 5 years.  The unit variable cost is $110 and total fixed costs (excluding CCA) are $195,000 per year.

The CCA rate for the new equipment is 30% and Home Inc. is going to claim the maximum CCA in every of the next 5 years.

Home Inc. Requires  to invest $140,000 in net working capital up front which will be fully recovered at the end of 5 years.

The equipment is estimated to be sold at its UCC value at the end of 5 years.

The discount rate is 15% and the tax rate is 35%.

Requirements: Show your calculation
a.    Measure the CCA allowance and ending UCC in each of the 5 years.
b.    Measure the net income and operating cash flow of this new product for each of the 5 years.
c.    Measure the initial investment outlay.
d.    Measure the PV of tax shield on CCA.
e.    Verify whether Home Inc. should invest in the new equipment using NPV as the evaluation method.


Related Discussions:- measure the initial investment outlay

Illustrate the new rules of sec, New Rules SEC i) Effective for years a...

New Rules SEC i) Effective for years after December 15, 2006 ii) New Disclosures mandated (1) Fair value of options on grant date (2) Value of grant per 123R (3) Cl

Cost recovery deduction, On May 15, 2010, Your Corporation acquired an airp...

On May 15, 2010, Your Corporation acquired an airplane (5 year recovery period, 6 year class life) for $1,450,000. Its qualified business use is 54%. Determine the maximum cost rec

Draw the event and decision tree, Suppose Real Option Inc. has a product th...

Suppose Real Option Inc. has a product that generates the following cash flow. At t=1, the demand can be high or low with equal probability. If demand is high (low) the cash flo

Practise.., What would be the effect on the balance sheet if adjustments (a...

What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?k question #Minimum 100 words accepted#

Strengths and weaknesses of capital asset pricing model, Q. Strengths and W...

Q. Strengths and Weaknesses of Capital asset pricing model? Strengths - Gives a risk adjusted discount rate precise to the project's activities. - Books of betas are r

Creation-express trusts-trust laws and accounts, Creation An express tr...

Creation An express trust is "created not by facts and circumstances, but by the express words of the settlor". (Fitzgerald v Stewart) It may be created in the following ways:

Define the 401 plan, Q. Define the 401 Plan? 401(k) Plan - EMPLOYEE BEN...

Q. Define the 401 Plan? 401(k) Plan - EMPLOYEE BENEFIT PLAN authorized by INTERNAL REVENUE CODE section 401(k), whereby an employer establishes an account for every participati

What is the pretax stock compensation, Refer to the Consolidated Statements...

Refer to the Consolidated Statements of Shareholders' Equity (pp. 62-63), Consolidated Statements of Cash Flow, including an abstract from Note 2, Cash Flow Information (pp. 61 and

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd