Question

Judson Industries is considering a new project. The project will initially require $749,000 for new fixed assets, $238,000 for additional inventory, and $25,000 for additional accounts receivable. Accounts payable is expected to increase by $70,001. The fixed assets will belong in a 30% CCA class. At the end of the project, in four years' time, the fixed assets can be sold for 40% of their original cost. The net working capital will return to its original level at the end of the project. The project is expected to generate annual sales of $944,000 with related cash expenses of $620,000. The tax rate is 35% and the required rate of return is 14%.

What is the amount of the earnings before interest and taxes for the first year of this project?

Answer 1

	Calculation Of Depreciation of fixed Asset
		= Cost * 30 %
		=749000*30%
		=$224700
	Calculation Of Earning Before Interest And Tax (EBIT) For First Year
	Sales Reveue		944000
	Less:
	Expenses		620000
	Depreciation		224700
	EBIT		99300