  (Solution) 14) Parappapa Is Considering An Eight-year Expansion Project That Requires An Initial Investment Of \$423,000 For The Purchase Of A New Capital Asset | Snapessays.com

(Solution) 14) Parappapa is considering an eight-year expansion project that requires an initial investment of \$423,000 for the purchase of a new capital asset

Hello,

I'm having trouble with questions 16 through 20 in the attached word document. My answers are 16)c, 17)b, 18)b, 19)d, 20)a.

However I state that with a lot of uncertainty.

Could you please help, or point me towards some resources (documents) with similar problems (about the "cost of capital") and their solutions.

Thank you,

Regards,

DanyPage 7 of 10

14) Parappapa is c

o

nsid

e

ring an

eig

h

t-y

e

a

r

ex

p

a

nsi

o

n project that r

e

quir

es an i

ni

ti

al i

nv

es

t

m

e

n

t

of \$423,000 for the purchase of a new c

a

pi

t

al asset wi

t

h a CCA rate of 30 percent. Th

e costs

t

o

install the asset are

\$27,000. T

h

e projected

a

nnu

al sal

es revenue and costs are

\$1.2M

a

nd

\$700,000 per year,

r

es

p

ec

tiv

ely. T

h

e

a

ppr

o

pri

a

t

e

disc

o

un

t rate is 15 percent. T

h

e fi

r

m’s

m

a

rgin

al tax rate is 35 percent. What is the fourth year CCA

ex

p

e

ns

e

?

a)

\$46,305.0

b)

\$56,227.5

c)

\$131,197.5

d)

\$154,351.0

e)

\$187,425.0

15) Genuess is i

n

t

e

r

es

t

e

d in a new

eig

h

t-y

e

a

r project. Th

e project calls for an initial cash

o

u

tl

ay

of \$1,000,000: \$650,000 for new

e

quip

m

e

n

t, \$25,000 for i

ns

t

alla

ti

o

n costs, and \$325,000 f

o

r

a

ddi

ti

o

n

al net working ca

pi

t

al. T

h

e asset has a CCA rate of 25 percent and an expected s

alvag

e

v

al

u

e of \$95,000. T

h

e project will generate

a

ddi

ti

o

n

al

o

p

e

r

a

ti

ng pr

ofi

t of \$325,000 per y

e

a

r.

What is the UCC at the end of year

3

?

a)

\$106,641

b)

\$110,742

c)

\$319,922

d)

\$332,227

e) None of the given c

h

oic

es

16) Happy Flowers

is c

o

nsid

e

ring the purchase of a new computer system for \$150,000. Th

e

asset has an

ec

o

n

o

mic life of four years, a CCA rate of 45 percent, and expected s

alvag

e v

al

u

e

of \$12,000. T

h

e project

als

o

r

e

quir

es an i

nv

es

t

m

e

n

t in net working c

a

pi

t

al of \$9,000.

T

h

e project is expected to generate after-tax

o

p

e

r

a

ti

ng inc

o

m

e of \$80,000 per year. Ass

u

m

e

t

h

e asset class

r

e

m

ai

ns open after the

asset is s

ol

d. Th

e fi

r

m’s cost of c

a

pi

t

al is 18 percent

a

nd

m

a

rgin

al tax rate is 40 percent. What is the

NPV of the project? T

h

e net working

c

a

pi

t

al is recaptured at the end of the project. (Disregard any

t

e

r

mi

n

al ca

pi

t

al gai

n

/l

oss)

a) -

\$31,085.31

b)

\$94,319.64

c)

\$103,774.63

d)

\$422,119.63

e) None of the given c

h

oic

es

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