You will build a new bike path and operate it for 5 years.
Using old technologies, the path will cost $3,000,000 of capital spending right now (Year 0). At the end of the contract the salvage value of the capital asset will be equal to the value of the asset’s undepreciated capital cost (UCC).
To maintain the path when in operation (Year 1 and onwards) there will be an annual fixed cost of $500,000 and a variable costs of $0.35 per rider.
The initial networking capital will be $700,000 and total net capital per year will be equal to 10% of revenues. The net working capital will be recovered at the end of the contract.
Revenue Canada has assigned a 20% rate to your capital cost allowance (CCA) and you are expecting a tax rate of 35%. The relevant discount rate is 9%. The appropriate amount of time to analyze payback periods is 3.2 years.
1) Show a table for the annual the depreciation of the capital asset for each project alternative. (Hint: For each year include beginning undepreciated capital cost (UCC),CCA, End UCC)
2) Show a table for the project alternative with the annual comprehensive income and operating cash flow.
3) Show a table for the project with the total networking capital and the change in net working capital for each year. (Hint: Don’t forget to include the net working capital recovered at the end of the project)
4) Show a table for the project depicting capital spending and salvage amounts for each year.
5) Show a table for the project summarizing the OCF, change in networking capital, capital spending, total project cash flow, cumulative project cashflow and discounted cash flow for each year.
6) Show a table comparing the NPV, IRR , payback period, discounted payback period and profitability index.