Asked by Salvador Ramirez on Jul 17, 2024
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You are considering investing in a piece of equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $41.67 for each of the three years of the project's life. The equipment has an initial cost of $125 and belongs in a 20% CCA class. Assume a 34% tax bracket, a discount rate of 15%, and a salvage value of zero. If the equipment is sold to another company at the end of year 3 for $20, what is the NPV?
A) -$33.56
B) -$28.91
C) $0
D) $28.91
E) $33.56
CCA Class
Stands for Capital Cost Allowance Class, a categorization in tax systems for depreciation of assets for tax purposes.
Pre-tax Cost Reduction
A reduction in expenses that occurs before taxes have been applied, aimed at improving a company's profitability.
Tax Bracket
A range of income amounts that are taxed at a particular rate. Tax brackets result in higher income being taxed at higher rates.
- Learn about the consequences of depreciation and the choice of a depreciation technique, such as CCA, on the financial metrics of net present value (NPV) and cash flows within a project.
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Learning Objectives
- Learn about the consequences of depreciation and the choice of a depreciation technique, such as CCA, on the financial metrics of net present value (NPV) and cash flows within a project.
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