Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. xyz inc. considers an investment project that requ

XYZ inc. considers an investment project that requires $200,000 in new equipment and $30,000 in...

90.2K

Verified Solution

Question

Finance

XYZ inc. considers an investment project that requires $200,000 in new equipment and $30,000

in extra NWC at the beginning of the project. The NWC will need to be increase by another

$10,000 at the end of year t=1 and it will remain at the $40,000 level until the project is

completed. The projects will lead to an increase in operating pre-tax net revenue of $75,000 per

year and will last for 3 years. At the end of the project (beginning of year t=6), the equipment

can be sold for the salvage value of $70,000. The equipment belongs to the CCA class with

d=30%, the corporate income tax rate is 40%, and the cost of capital is 7%

a: Find the value discounted (If needed) to time t=3 of the cash flow from

the sale of the equipment, including its tax effect

b: Find the NPV of the project:

c: Find PV of the operational cash flow

d: Find PV of the effect of all changes in NWC not including the original $30,000

increase before the start of the project

e: Find PV of the tax shield

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students