A company is planning to invest in a project,which requires the purchase of capital assets of $200,000 and additional net working capital of $20,000.The assets have a five-year life,a CCA rate of 30 percent,and an expected salvage value of $35,000.The annual costs for the project's operations are $50,000.The company's effective tax rate is 40 percent and the cost of capital is 12 percent.Assume the asset class remains open after the assets are sold.What is the break-even pre-tax annual operating revenue?

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Quizplus · Accepted Answer

CF₀ = $200,000 + $20,000 = $220,000 11ea8229_3479_d133_bbd8_0966c0407492_TB1726_00 PV(ECF)=(35,000+20,000)/1.12⁵=31,208.48 PV(After-tax operating income)= −$48,407.36 − $31,208.48 + $220,000 = $140,384.16 Using financial calculator,PV=−140,384.16,i/y=12,n=5.CPT PMT=$38,943.93 Annual after-tax cash=$38,943.93 Annual pre-tax revenue=38,943.93/(1−40%)+50,000=$114,906.55

A Company Is Planning to Invest in a Project,which Requires