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XYZ inc. considers an investment project that requires $200,000 in new equipment and $30,000
in extra NWC at the beginning of the project. The NWC will need to be increase by another
$10,000 at the end of year t=1 and it will remain at the $40,000 level until the project is
completed. The projects will lead to an increase in operating pre-tax net revenue of $75,000 per
year and will last for 3 years. At the end of the project (beginning of year t=6), the equipment
can be sold for the salvage value of $70,000. The equipment belongs to the CCA class with
d=30%, the corporate income tax rate is 40%, and the cost of capital is 7%
a: Find the value discounted (If needed) to time t=3 of the cash flow from
the sale of the equipment, including its tax effect
b: Find the NPV of the project:
c: Find PV of the operational cash flow
d: Find PV of the effect of all changes in NWC not including the original $30,000
increase before the start of the project
e: Find PV of the tax shield
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