The tax rate is 37% and the appropriate discount rate is 12%. Assuming that Lear

Question

The tax rate is 37% and the appropriate discount rate is 12%. Assuming that Learning Corp. will replace the systems at the end of their life, answer the following questions: What is the NPV for System A? What is the NPV for System B? Which system should Learning Corp. buy? Problem # 7: (10 MARKS) Your company wants to bid on the sale of 10 customized machines per year for five years. The initial costs for the project are $1.5 million with a salvage value of $700,000 after five year. The manufacturing equipment belongs in 30% CCA class. Annual fixed costs are estimated at $600,000. Variable cost per machine is $85,100. The project requires net working capital of $100,000. The company has 34% tax rate and desires a 14% return on the project. What is the depreciation tax shield in the second year of this project? What is the present value of the CCA tax shield? What is minimum price that the company should bid per single machine? Problem #8: (10 MARKS)

Explanation / Answer

Part B.. Present Value of tax shiel is

Present value = future value (1+rate ) no. of years

=.3825million (1+30%)2

=0.6464 million

no of years shoul be 2 as from second year we are getting present value.

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