The Beer Brewing Company is interested in a new eight-year project.The project calls for an initial cash outlay of $1,000,000: $850,000 for new equipment, $100,000 for installation costs, and $50,000 for additional net working capital.The asset has a CCA rate of 30% and an expected salvage value of $75,000.The project will generate additional operating profit of $325,000 per year.What is the UCC at the end of year 3 assuming half-year rule is applicable for CCA in year 1?

Question

Quizplus · Accepted Answer

The UCC at the end of year 3 can be calculated by applying the half-year rule in the first year and then the CCA rate of 30% for the subsequent years on the declining balance. Initial cost is $850,000 (equipment) + $100,000 (installation) = $950,000. Year 1 CCA: $950,000 * 30% * 0.5 (half-year rule) = $142,500. Remaining UCC after year 1: $950,000 - $142,500 = $807,500. Year 2 CCA: $807,500 * 30% = $242,250. Remaining UCC after year 2: $807,500 - $242,250 = $565,250. Year 3 CCA: $565,250 * 30% = $169,575. Remaining UCC after year 3: $565,250 - $169,575 = $395,675.

The Beer Brewing Company Is Interested in a New Eight-Year