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Evaluating a proposal to build a new solar plant

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Solar Co. is evaluating a proposal to build a new solar plant. The new plant is expected to cost $200 million today (at t = 0). The expected useful life of the plant is eight years. The salvage value of the plant in eight years is $35 million (at t = 8). The relevant CCA rate for the solar plant is 40%. Solar Co. has a corporate tax rate of 35% and a required rate of return of 15% to evaluate this project. What is the present value of CCA tax shields today (at t = 0)? Assume that the CCA asset class pool to which the new solar plant belongs will have other assets in the pool at the end of the project (at t = 8).

Reference no: EM132481778

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