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Question 6: Consider a capital project whose initial cost, which is all capital, cost is $200million....

Question 6: Consider a capital project whose initial cost, which is all capital, cost is $200million. The project's anticipated economic life is 8 years. At the end of each of these 8 years the project is expected to produce an incremental revenue of $10million and 40% of the incremental revenue will be the incremental costs, other than the capital cost allowance, CCA. The CCA will be claimed on a declining balance basis at the d rate of 30%. The first year one-half will apply. The corporate tax rate o the firm is 40%. The salvage value f the equipment at the end of year 8 id $6.0million. The project's capital cost is 12% per annum. Finally the project will require the incremental net working capital of $1.5 million now and at the end of the first year, and thereafter incremental net working capital requirements will be zero. Evaluate the project.

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