HMS Corporation Is Considering an Expansion Project That Requires Investment

question 92

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 assuming accelerated investment incentive is applicable for CCA in year 1.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:

Leadership Gap

The difference between the leadership qualities required to face current challenges and the qualities actually present in leaders.

Work-Family Separation

The practice or policy of delineating clear boundaries between one’s work responsibilities and personal life to promote balance and reduce conflict between these domains.

Homosocial Reproduction

The practice of individuals in power positions favoring others who are similar to themselves in terms of social characteristics, such as gender, ethnicity, or educational background.

Educational Parity

The goal of achieving equal educational opportunities and outcomes for all students, regardless of their background or circumstances.