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Answers to Assignment No. 7 Chapter 8- Questions and Problems: Answer to Q 6 Cash flow = Net income + depreciation – increase in NWC 1.2 = 1.2 + .5 – Δ NWC Δ NWC = \$0.5 million Answer to Q 13 At the break-even level of sales, which is 60,000 units, profit would be zero: Profit = 60,000 × (2 – variable cost per unit) – 20,000 – 10,000 = 0 Solve to find that variable cost per unit = \$1.50 Answer to Q 14 Cash flow = profit – increase in inventory = \$10,000 – \$1,000 = \$9,000 Answer to Q 20 a. The year-wise CCA for the new grill, over its expected life, is as follows: Year UCC CCA (30%) End of year UCC 1 \$20,000 \$3,000 \$17,000 2 17,000 5,100 11,900 3 11,900 3,570 8,330 Operating cash flow contribution, excluding tax shields, for year 1 through 3 = Saving in energy expenses x (1 - .35) = \$10,000 x (1 - .35) = \$6,500. Now, we must consider the effect of the CCA tax shield on the project’s yearly cash flows.

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Year: 1 2 3 Contribution from saving in energy expenses 6,500 6,500 6,500 CCA Tax Shield (CCA x .35) 1,050 1,785 1,250 Total Operating Cash Flow 7,550 8,285 7,750 b. Total Cash Flow (0-3) = Operating CF + CF associated with investments.
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