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# Kona Coffee Roaster Corp. (KCR) is considering the replacement of

one of their commercial large-size coffee roasters. KCR hired Valuation Consulting Partners for a valuation analysis. The consultants compiled the following numbers:  The new coffee roaster costs \$200,000 today (t = 0) and can be sold at the end of its expected operating life in five years for \$25,000 (t = 5)  The old coffee roaster was bought for \$100,000 two years ago (t = -2), can be sold today for \$25,000 (t = 0), and is expected to be worthless in five years (t = 5).  Both coffee roasters belong to asset class 43 with a CCA rate of 30%.  The new coffee roaster would reduce operating costs (before tax) by \$50,000/year (t = 1,...,5).  Net working capital is expected to decrease by \$30,000 at the beginning of the first year (t = 0). This change will be reversed, i.e., net working capital will increase again by \$30,000 at the end of the project in five years (t = 5). Valuation Consulting Partners' fee for their study is \$40,000 (before tax) and payable today (t = 0). KCR's tax rate is 40% and the required rate of return is 10%.

What is the CCA in year 2 (t=2) and what is the present value of CCA tax shields today (t=0)

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