Alpine Company Is Analyzing Two Investment Projects $\mathrm { P }$

question 165

Multiple Choice

Alpine Company is analyzing two investment projects: $\mathrm { P }$ and $\mathrm { Q }$ . The following data are available:
$\begin{array}{l|r|r|}\hline & \text { Project P } & \text { Project Q } \\\hline \text { Investment in Computer Equipment now } & \$ 140,000 & \$ 0 \\\hline\end{array}$
$\begin{array}{|l|r|r|}\hline \text { Investment in Working Capital Now } & \$ 0 & \$ 90,000 \\\hline \text { Net Annual Operating Cash inflows } & \$ 20,000 & \$ 16,000 \\\hline \text { Life of Project } & 8 \text { years } & 8 \text { years } \\\hline\end{array}$ The computer equipment for Project P will have a total salvage value of $8,000 at end of eight years. It will belong to Class 10 with a 30% maximum CCA rate. At the end of eight years, the working capital for Project Q will be released for use elsewhere. The income tax rate is 30% and Alpine's after-tax cost of capital is 10%.
- What is the approximate present value of the tax savings (for all years) due to the CCA tax shield for Project P? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

• A) $29,228.
• B) $30,068.
• C) $30,908.
• D) $31,500.

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Definitions:

Product A

Represents a specific item or service offered by a company to its customers, identified as "A" for differentiation purposes.

Total Budgeted Sales

The total sales revenue a company anticipates to earn over a specific period as estimated during the budgeting process.

Cash Sales

Transactions in which goods or services are exchanged for immediate payment.

Sales Budget

An estimate of the expected total sales revenue and selling expenses of a company within a specified future period.