(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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