Acad business that is considering its first project. The required equipment investment by the company is $50,000 (CCA class 39) with an expected revenue of $20,000 in year 1, increasing by 5%/year for the 5-year life of the project. Costs in year 1 are expected to be $5000, increasing by 3%/year for the 5-year life of the project. The salvage value of the equipment at the end of the five years is $5000 and the tax rate is 40%. a) What is the

Acad business that is considering its first project. The required equipment investment by the company is $50,000 (CCA class 39) with an expected revenue of $20,000 in year 1, increasing by 5%/year for the 5-year life of the project. Costs in year 1 are expected to be $5000, increasing by 3%/year for the 5-year life of the project. The salvage value of the equipment at the end of the five years is $5000 and the tax rate is 40%. a) What is the

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Chapter1: Making Economics Decisions

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Question

Acadia Construction Company is a new
business that is considering its first project.
The required equipment investment by the
company is $50,000 (CCA class 39) with an
expected revenue of $20,000 in year 1,
increasing by 5%/year for the 5-year life of the
project. Costs in year 1 are expected to be
$5000, increasing by 3%/year for the 5-year
life of the project. The salvage value of the
equipment at the end of the five years is
$5000 and the tax rate is 40%. a) What is the
NPW of the project and the IRR if the MARR is
15%? b) Because the company is a new
company, it may be eligible to enjoy a
reduced tax rate over the life of the project. If
Acadia Construction Company wants to earn
a 15% on their project, what would the
reduced tax rate have to be?
Show all working, try not to use excel

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Step 1: Define Net Present Worth

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Step 2: Find Net Present Worth

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Step 3: Find IRR when MARR is 15%

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