06B A Simple Example - Solution

06B A Simple Example - Solution - You are considering the...

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Expected life of machine 3 years Cost of machine (class 10, 30%) $800,000 Estimated market value at the end of 3 years $125,000 Production (in units) per year: 20,000 25,000 20,000 Price (per unit) $100 Production costs per year (per unit) $80 Production costs per year (fixed) $50,000 Working Capital a) in year 0: $30,000 b. ) From year 1: 10% Corporate tax rate: 40% CCA rate: 30% RRR = 10% Year 0 1 2 3 $2,000,000.00 $2,500,000.00 $2,000,000.00 $1,600,000.00 $2,000,000.00 $1,600,000.00 $50,000.00 $50,000.00 $50,000.00 $350,000.00 $450,000.00 $350,000.00 $210,000.00 $270,000.00 $210,000.00 NWC: $30,000 $200,000.00 $250,000.00 $200,000.00 Changes in NWC: $(30,000.00) $(170,000.00) $(50,000.00) $50,000.00 NWC Recaptured: $200,000.00 Capital expenditure: $(800,000.00) $125,000.00 TOTAL Cash Flow (Excluding CCA TS) $(830,000.00) $40,000.00 $220,000.00 $585,000.00 Present Value Calculation PV of Year 0 CFs PV of Year 1 CFs PV of Year 2 CFs PV of Year 3 CFs PV of Cash Flows (Excluding CCA TS) $(830,000.00)
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