A proposed cost-saving device has an installed cost of $600,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $128770 b. Suppose the device will be worth $84,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $180089
A proposed cost-saving device has an installed cost of $600,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $128770 b. Suppose the device will be worth $84,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $180089
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
am. 111.
Transcribed Image Text:A proposed cost-saving device has an installed cost of $600,000. It is in Class 8 (CCA rate = 20 %) for CCA purposes. It will actually
function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax
rate is 35%.
a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the
problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $
sign in your response.)
Cost savings
$128770
b. Suppose the device will be worth $84,000 in salvage (before taxes). How does this change your answer? (Do not round your
intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
Cost savings
$180089
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