Judson Industries Is Considering a New Project

question 292

Multiple Choice

Judson Industries is considering a new project. The project will initially require $749,000 for new fixed assets, $238,000 for additional inventory, and $25,000 for additional accounts receivable. Accounts payable is expected to increase by $70,001. The fixed assets will belong in a 30% CCA class. At the end of the project, in four years' time, the fixed assets can be sold for 40% of their original cost. The net working capital will return to its original level at the end of the project. The project is expected to generate annual sales of $944,000 with related cash expenses of $620,001. The tax rate is 35% and the required rate of return is 14%.

What is the amount of the present value of the CCA tax shield for this project?

• A) $104,860
• B) $112,290
• C) $125,432
• D) $144,920
• E) $199,600

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Definitions:

Variable

An element, feature, or factor that is liable to vary or change.

Confidence Interval

A gamut of values, arising from sample statistic evaluation, with a high likelihood of encompassing the value of a mysterious population parameter.

Sample Size

The number of observations or cases used in a study or experiment, which can impact the reliability and validity of statistical results.

Variable

Any characteristic, number, or quantity that can be measured or quantified, which can vary among subjects in a study.