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Vextron Inc in Canada is planning on manufacture engine blocks

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1. Vextron Inc in Canada is planning on manufacture engine blocks for new vehicles. They expect to sell;250 blocks annually for the next 5 years. The foundry and machining equipment will cost a total of;$800,000 and belongs in a 30% CCA (Capital Cost Allowance) class for tax purposes. The firm expects;to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and;materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and;a 12% discount rate.;a. What is the depreciation tax shield in the third year for this project?;b. What is the present value of the CCA tax shield?;c. What is the minimum bid price the firm should set as a sale price for the blocks if the firm were in a;bidding situation?;d..Assume that management believes that auto restorers will pay $3,000 retail per engine block. What is;the NPV of this project?

 

Paper#32771 | Written in 18-Jul-2015

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