Hull Small Business is considering an expansion project that requires $135,000 for the purchase of capital assets and $35,000 for additional inventory.The project will generate after-tax operating income of $50,000 per year.The project has a five-year economic life and a CCA rate of 20%.What is the ending UCC upon termination of the project assuming accelerated investment incentive is applicable for CCA in year 1?

Question

Quizplus · Accepted Answer

The initial UCC is $135,000. In year 1, with the accelerated investment incentive, the CCA is 1.5 times the normal rate, so 30% of $135,000, which is $40,500. The UCC at the end of year 1 is $135,000 - $40,500 = $94,500. For years 2 to 5, the CCA is 20% of the remaining UCC each year. Calculating this for each year, the ending UCC after 5 years is approximately $38,707.

Hull Small Business Is Considering an Expansion Project That Requires