1) Best Darn Glasses (BDR) is thinking of investing in a sandblasting machine for its glassware....

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1) Best Darn Glasses (BDR) is thinking of investing in asandblasting machine for its glassware. It provides you with thefollowing information: The initial investment for this projectwould be $235,000 in specialized machinery. According to CRA, thismachine falls into a CCA class of 8%. There is the possibility ofsalvage of $6,000, although it’s not for sure. The risk-adjustedcost of capital is 12% and the company’s tax rate is 25%. Calculatethe CCA tax shield under both scenarios – with and withoutsalvage.
2) Using the information from above, calculate the project’s NPVif the following information were also provided to you: Cost ofmaintenance of the sandblasting machine is $35,000 per year, andthe machine will only last 10 years. The salvage value, at thatpoint, will be zero. The company’s revenues will be $170,000 peryear with direct production costs of $27,000.

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3.8 Ratings (394 Votes)

Facts given in this case Investment is 235000 Tax rate is 25 Disc rate is 12 Revenues are 170000 per year Life is 10 years CCA Capital Cost Allowance Rate 8 Calculation of tax shield Tax shield can be See Answer

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1) Best Darn Glasses (BDR) is thinking of investing in asandblasting machine for its glassware. It provides you with thefollowing information: The initial investment for this projectwould be $235,000 in specialized machinery. According to CRA, thismachine falls into a CCA class of 8%. There is the possibility ofsalvage of $6,000, although it’s not for sure. The risk-adjustedcost of capital is 12% and the company’s tax rate is 25%. Calculatethe CCA tax shield under both scenarios – with and withoutsalvage.2) Using the information from above, calculate the project’s NPVif the following information were also provided to you: Cost ofmaintenance of the sandblasting machine is $35,000 per year, andthe machine will only last 10 years. The salvage value, at thatpoint, will be zero. The company’s revenues will be $170,000 peryear with direct production costs of $27,000.