HMS Corporation Is Considering an Expansion Project That Requires Investment

question 17

Essay

HMS Corporation is considering an expansion project that requires investment in capital assets of $545,000, costs of $15,000 to modify the assets before they can be put into operation, and additional raw materials inventory of $50,000 to support the project.In addition, HMS had spent $25,000 to study the viability of this project.The one-time after-tax opportunity costs associated with this project are $36,000.The project is expected to generate operating revenue of $600,000 per year, and the associated operating expenses are estimated at $275,000 per year.The capital assets belong to asset class 9, which has a CCA rate of 30%.The assets are expected to sell for $42,000 when the project terminates in eight years.Assume the asset class remains open after the project terminates and that the half-year rule applies in the first year.The firm's cost of capital is 14% and marginal tax rate is 40%.
a)What is the initial after-tax cash flow?
b)What is the present value of the CCA tax savings?
c)What is the present value of the after-tax operating cash flows?
d)What is the ending after-tax cash flow?
e)What is the NPV of the project?

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Definitions:

Duty to Warn

A legal or ethical requirement to inform others if a person poses a credible threat of danger to themself or others.

Confidentiality

The ethical and legal duty to protect the privacy of information by not disclosing it to unauthorized individuals or parties.

Intramuscular Injection

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Antipsychotic Medication

A class of drugs used to manage psychosis, including disorders such as schizophrenia and bipolar disorder, by altering brain chemistry.