Windpower Systems Maintenance Ltd

question 56

Essay

Windpower Systems Maintenance Ltd.purchased a CCA Class 10 (CCA rate of 30%)vehicle for $360,000.The vehicle was the only item in the Class 10 capital cost allowance pool.The vehicle is expected to generate net cash income, excluding any tax effects, in the amount of $70,000 per year.The company uses straight-line depreciation, estimates a 6 year useful life with a $40,000 salvage value for the new vehicle at the end of year 6.The marginal tax rate is 35% and the company's average tax rate is 25%.Management requires a rate of return of 15.0%.Assume that cash flows occur at the end of the year.Required:
a.What is the unamortized capital cost at the beginning of year 2 if the maximum capital cost allowance that is allowed is taken in the first year?
b.What is the net present value of the investment in the vehicle?

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Definitions:

Cones

In the retina, specific cells called photoreceptors facilitate color vision and are most efficient in conditions of ample light.

Peripheral Areas

Regions or zones that are outside or on the edge of a central area, often implying a distance from a main or core location.

Pigeon Retina

The pigeon retina is a specific study subject in vision science, exploring how these birds perceive light and color, contributing to our understanding of avian vision and comparative physiology.

Cones

Specialized photoreceptor cells in the retina of the eye that are responsible for color vision.