The information in this question applies to the next four Multiple Choice questions: Company ABC is a clothing manufacturer and is considering buying a new manufacturing machine to produce a new line of disposable hospital gowns. The machine has an estimated life of 3 years and costs $30,000. The machine falls under asset class 43 and has a capital cost allowance (CCA) rate of 30%. At the end of 3 years the machine will be scrapped as it will have a zero value. The tax rate for company ABC is 35%. a The new machine will result in sales of 2,000 gowns in year 1, at a selling price of $18 each, and a cost of $10 each. The number of gowns sold is estimated to grow by 8% per year. The per unit selling price and cost will remain unchanged over the three years. The production of this new product line will result in additional working capital balances at the end of each year as follows: • Year O: Zero balance • Year 1: $2,160 • Year 2: $2,333 • Year 3: Zero balance ABC has a cost of capital of 10%. Question 3 1 pts The Profit after tax, and before CCA deductions for ABC for years 1, 2 and 3 are: Y1: $13,000; Y2: $14,040; Y3: $15,163 Y1: $13,000; Y2: $13,000 Y3: $13,000 Y1: $10,400; Y2: $10,400; Y3: $10,400 O Y1: $16,000; Y2: $17,280; Y3: $18,662 Question 4 1 pts The Present Value of the CCA Tax Shield is: $30,000 $3,150 $7,875 $7,517 Question 5 1 pts The change in working capital for Years 1, 2 and 3 is: O Y1: $2,160 outflow; Y2: $173 outflow, Y3: $2,333 outflow O Y1: $2,160 inflow; Y2: $173 inflow, Y3: $2,333 outflow Y1: $2,160 outflow; Y2: $2,333 outflow, Y3: $0 inflow O Y1: $2,160 outflow; Y2: $173 outflow, Y3: $2,333 inflow Question 6 1 pts The NPV of this project is: $41,977 $34,460 $15 O $11,977
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