Question: Consider the following investment:
Initial Investment $ 10,000
Additional operating revenues
Year 1 and 2 $ 3,500 each year
Year 3 and 4 $ 4,000 each year
Given a discount rate of 8 percent, a maximum rate for capital cost allowances on a declining balance of 20 percent, and a corporate tax rate of 40 percent, calculate:
(a) The net cash flows generated by the project during the first 4 years;
(b) The present value of the total tax shield from CCA;
(c) The net present value and internal rate of return for this project;
(d) The payback period to the nearest year (round up); and
(e) The net present value of the project, assuming that a salvage value of $2,000 can be realized at the end of the 4th year.