Given the following information and assuming a CCA rate of 30% (Class 10), what is the NPV for this project? Initial investment in fixed assets = $800,000; initial investment in net working capital = $200,000; life = four years; pre-tax cost savings = $400,000 per year; salvage = $10,000 in year 4; tax rate = 35%; discount rate = 12%.

Question

Quizplus · Accepted Answer

The NPV calculation involves discounting the net cash flows of the project back to their present value and subtracting the initial investment. The net cash flows are affected by the cost savings, tax effects, depreciation (using CCA), and the salvage value. Given the tax rate, discount rate, and the specifics of the investment, the correct NPV calculation results in a positive value, indicating that the project adds value to the company. The calculation involves detailed steps including calculating the tax shield from depreciation, the after-tax salvage value, and the net working capital recovery, all of which contribute to the final NPV figure.

Given the Following Information and Assuming a CCA Rate of 30