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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This note was uploaded on 11/01/2011 for the course BUSINESS FIN301 taught by Professor Andrew during the Fall '10 term at University of Alberta.

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