The managers of Magma International, Inc plan to manufacture engine blocks for classic cars from the 1960s era. The expect to sell 250 blocks annually for the next five years. The necessary foundry and machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax purposes. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate.
a.) What is the depreciation tax shield in the third year for this project?
b.) What is the present value of the CCA tax shield?
c.) What is the minimum bid price the firm should set as a sale price for the blocks if the firm were in a bidding situation?
d.) Assume that management believes that auto restores will pay $3,000 retail per engine block. What is the NPV of this project?
For instant digital download of the above solution, Please click on the “PURCHASE” link below to get the tutorial for The managers of Magma International Inc plan to manufacture engine blocks_Answer
For instant digital download of the above solution or tutorial, please click on the below link and make an instant purchase. You will be guided to the PAYPAL Standard payment page wherein you can pay and you will receive an email immediately with a download link.
In case you find any problem in getting the download link or downloading the tutorial, please send us an email on firstname.lastname@example.org