Question
The Vice President of Comdev Ltd. considers a proposal submitted by its Engineering Department for creating a DVD disc manufacturing facility at Comdev's existing Edmonton plant. The financial information supplied by the Engineering Department in support of this project is given below:
Project life 6 years
Initial equipment cost $4,000,000
End of the year net revenue (total revenue minus costs)
at the end of the first year of the project $900,000
Expected increments in the annual end of year net revenue $Y
(i.e., the annual net revenue at the end of the second year is
$900,000 + $Y; at the end of the third year $900,000 + 2$Y; etc.)
Equipment upgrade and preventive maintenance costs
at the end of year 3 of the project (one time cost) $X
Equipment salvage value Nil
Determine (considering before tax cash flows):
(a) the value of X that would make the future value of the proposed project equal to $1,000,000. Y = $50,000 and the interest rate is 6 % yearly compounding
(b) the maximum value of X that would make the proposed project acceptable for Comdev.
Y = 0 and the MARR is 6 % yearly compounding
(c) the external rate of return of the proposed project. X = 0, Y = 0, and the reinvestment rate is 6 % yearly compounding
(d) the after tax cash flow in the second year of the project. The tax rate is 45% , the CCA (capital cost allowance ) rate is 20 % and Y = 0
Additional Information:
This question is basically belongs to the Finance as well as it explains about computing the future value, the maximum value, the external rate of return and after tax cash flow for a proposed project.