Queue De Castor Foods Is Considering the Purchase of a New

question 55

Multiple Choice

Queue de Castor Foods is considering the purchase of a new capital asset for $35,000.The asset has an economic life of three years, a CCA rate of 20%, and expected salvage value of $5,000.The project also requires an investment in net working capital of $4,500.Assume the asset class remains open after the asset is sold.The firm's cost of capital is 14% and marginal tax rate is 40%.What is the present value of the terminal after-tax cash flow (ECF_n) ?

• A)$2,319.20
• B)$6,412.23
• C)$9,900.48
• D)$10,505.26

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Definitions:

ROCE

Return on Capital Employed; a financial ratio that measures a company's profitability and the efficiency with which its capital is used.

Financing Charges

Interest and other costs associated with borrowing funds or purchasing goods and services on credit.

ROE

Return on Equity; a financial ratio that measures the profitability of a company in relation to the amount of equity, indicating how effectively shareholder equity is being utilized to generate profits.

Financial Leverage

Employing borrowed funds to amplify the potential gains from an investment, while also elevating the likelihood of incurring losses.