Amazing Lace has an opportunity to invest in a ten-year project that requires an initial investment of $2 million in a capital asset with a CCA rate of 20%.The initial net working capital requirement is $200,000, which will remain unchanged throughout the life of the project.The capital asset is expected to sell for $75,000 when the project terminates.Assume the asset class is closed upon termination of the project.The firm's cost of capital is 10.5% and marginal tax rate is 40%.What is the ending after-tax cash flow (ECF)assuming accelerated investment incentive is applicable for CCA in year 1?

Question

Quizplus · Accepted Answer

The ending after-tax cash flow (ECF) is calculated by considering the salvage value of the asset, the tax implications of the sale, and the recovery of net working capital. The salvage value is $75,000, and the tax on the sale is calculated by considering the undepreciated capital cost (UCC) and the tax rate. The net working capital of $200,000 is recovered at the end of the project.

Amazing Lace Has an Opportunity to Invest in a Ten-Year