A Company Has Won a Four- Year Contract to Produce

question 24

Multiple Choice

A company has won a four- year contract to produce extraction equipment for the Athabasca Oil Sands project. It is buying $79.5 million worth of machinery for its Lachine, Quebec plant to be able to fulfill the order. The machinery is financed by a four-year loan at 8% per year, with the current portion of the principal and the interest, equaling $24 million, due at the end of each year. Salvage value is expected to be $29.3 million. If the company's tax rate is 32%, the capital cost allowance (CCA) rate is 25% and the discount rate is 8%, what is the net present value of the company's tax shield over the life of the contract?

• A) $6.5 million
• B) $17.9 million
• C) $19.3 million
• D) $21.3 million
• E) $27.5 million

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Definitions:

Financialization

The increasing influence of financial markets, financial motives, financial institutions, and financial elites on the economy and society at large.

Financial Transactions

Activities involving the exchange of money or monetary value between individuals, organizations, or financial institutions.

Corporate Profits

The financial surplus gained by a company after all expenses and taxes have been deducted from total revenue.

Economic Environment

The combination of external economic factors that impact the operation of businesses, such as inflation, employment rates, and GDP growth.