Judson Industries Is Considering a New Project

question 332

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:

Face Value

The nominal or dollar value printed on a financial instrument, such as a bond or stock certificate, representing its value at issuance.

Take-Home Pay

Take-home pay is the amount of wages that an employee actually receives after all deductions, such as taxes and social security contributions, have been subtracted.

Gross Pay

The total amount of an employee's earnings before any deductions are made for taxes, benefits, and other payroll deductions.

Voluntary Deductions

Deductions from an employee's paycheck that are made with the employee's consent, such as for benefits, union dues, or retirement plans.