Development Company is considering investment project requiring 1.5 million in equipment and additional installation costs of 30,000 and 50,000 in fixtures. Incremental operating income for this project is expected to be 455,000 for 4 years and 475,000 for another 3 years. At the end of seven years the equipment will be sold for 155,000. Before investing they were renting the unused building for 60,000 a year. The CCA tax rate on fixtures and equipment is 30%. Company tax rate is 40% and its cost of capital is 12%. Should Company proceed with the new project.,Thank you,It is the initial outlay, wasn't sure about after-tax amount that is to be used. I realized, I have to deduct the 60,000 lost of rent for 7 years. I was assuming the Cashflow is the initail outlay, (that is where my first problem), but uderstandig if it is 455-60 for 4 years, then 475-60 for 3 years was the only cash inflow entries to be made.,I'm sorry I missed part of the question; it stated that the 50,000 fixtures was capitalized.
Paper#6863 | Written in 18-Jul-2015Price : $25