Couldsome answer this question pls? An engineering project analyst is contemplat
ID: 2500235 • Letter: C
Question
Couldsome answer this question pls?
An engineering project analyst is contemplating a 3 year project which will require an up-front outlay for equipment of dollar 85,000. It is anticipated that, if there is no inflation, annual revenues from the project will be dollar 60,000 and annual cash expenses will be dollar 25,000 in the first year and rise by 5 percentage per annum. It is estimated that the left-over equipment will fetch dollar 45,000 at the end of 3 years. The equipment is to be depreciated using a CCA of 25 percentages; the corporate tax rate is 30 percentage.Explanation / Answer
a.
b. Net Present Value
Cash outflow in year 0 -85000 Annual inome after tax [60000 - 25000] x (1-0.3) 24500 Rate of inflation per year 5% Annual Cash inflow before depreciation Year 1 24500 Annual Cash inflow before depreciation Year 2 25725 Annual Cash inflow before depreciation Year 3 27011 Tax Saving on depreciation for year 1 85000 x 25% 21250 Tax Saving on depreciation for year 2 63750 x 25% 15938 Tax Saving on depreciation for year 3 47812 x 25% 11953 Tax on Capital Gain at year 3 [45000 - 35859] x 30% -2742 Salvage Value at year 3 45000 Net Cash Inflow 83635