Louie's Leisure Products Is Considering a Project Which Will Require

question 161

Multiple Choice

Louie's Leisure Products is considering a project which will require the purchase of $1.4 million in new equipment. The equipment belongs in a 20% CCA class. Louie's expects to sell the equipment
At the end of the project for 20% of its original cost. Annual sales from this project are estimated at
$1) 2 million. Net working capital equal to 20% of sales will be required to support the project. All of
The net working capital will be recouped at the end of the project. The firm desires a minimal 14%
Rate of return on this project. The tax rate is 34%.
What is the present value of the CCA tax shield for this project?

• A) $34,299
• B) $68,047
• C) $132,493
• D) $200,782
• E) $240,427

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Definitions:

Conditional Response

A learned response to a previously neutral stimulus that has become associated with another stimulus through conditioning.

Unconditional Stimulus

In classical conditioning, a stimulus that naturally and automatically triggers a response without any prior learning.

Conditional Stimulus

In classical conditioning, a previously neutral stimulus that, after association with an unconditioned stimulus, comes to elicit a conditioned response.

Unconditional Response

An automatic response to a stimulus that occurs naturally without any need for learning or conditioning.