Maritimes Toy Corporation (MTC)is considering investing in a piece of new equipment worth $50,000.The equipment will increase operating revenue by $10,000 per year for ten years.The equipment is expected to have no salvage value at the end of ten years, and capital cost allowance is claimed at 20% on a declining balance.The corporate tax rate is 38%, and MTC's opportunity cost of capital is 9%.Assume the asset class remains open after the asset is sold and assuming accelerated investment incentive is applicable for CCA in year 1? The project's NPV is approximately

Question

Quizplus · Accepted Answer

The NPV calculation involves determining the after-tax cash flows, including the tax shield from CCA, and discounting them at the opportunity cost of capital. The accelerated investment incentive allows for a higher CCA claim in the first year, increasing the tax shield and affecting the NPV.

Maritimes Toy Corporation (MTC)is Considering Investing in a Piece of New