CathFoods Will Release a New Range of Candies Which Contain

question 4

Multiple Choice

CathFoods will release a new range of candies which contain antioxidants.New equipment to manufacture the candy will cost $2 million.The new equipment falls under asset class 43 and has a capital cost allowance (CCA) rate of 30%.It is expected that the range of candies will bring in revenues of $4 million per year for five years with production and support costs of $1.5 million per year.If CathFoods' marginal tax rate is 35%,what are the incremental free cash flows in the first year of this project?

• A)-$0.27 million
• B)$1.43 million
• C)$1.46 million
• D)$2.50 million
• E)$4.0 million

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Definitions:

Income Tax System

The framework by which governments collect a percentage of income from individuals and businesses as tax, which varies according to earnings levels.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, representing the percentage of additional income that is paid in tax.

Tax Liability

The total amount of tax that an individual or a corporation owes to the government.

Income

The total amount of money earned or received by an individual or group, typically within a specified period, from work, investments, or other sources.