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What is the total after-tax annual cost of a machine producing bolts with a first cost of $45,000 and operating and maintenance costs of $0.22 per unit per day? It will be sold for $4,500 at the end of five years. Production volumes are 750 units per day. 250 days per year. The CCA rate is 30%, the after-tax MARR is 20%. And the corporate income tax in 2012 is 40%. (Consider the Canadian Taxation System for your calculations. The formulation of the CTF and CSF factors is provided in chapter 8.8.3 and ex 8.7 of the textbook.)


An investment alternative in a project requires a capital cost of $102 millions completed at time zero. The investment will produce a stream of revenue of $50 millions per year over a 6-year period with operating cost of $20 millions per year. General inflation is 5% and the rate of taxation is 40%. Assume an individual project basis for taxation in which the capital expenditure can be fully depreciated over the duration of the project on a straight-line base

find out :

(i) The annual after tax cash flows in a table after taking into account both taxation and inflation effects (in real/ constant dollars):
(ii) The pay back period – based on annual after tax cash flows. You do not need to find out the PW values


A plant is considering the replacement of a piece of equipment in its materials handling system with a new piece. If the company’s cost of capital is 10%. Should the present asset be kept or replaced ? state your recommendation. { TIP: find out the EAC (Equivalent annual cost) of each of the two options } the following data are provided:

Present asset

Present salvage value : $10.000
Economic life : 1 Year
Next Year’s operating and maintenance costs: $51,000
Salvage value in one year: $5,000

Replacement alternative

Capital cost: $200.000
Economic Life: 8 years
Operating and maintenance costs:
Years 1-2: $15,000 per year
Years 3-4: $20,000 per year
Years 5-6: $25,000 per year
Years 7-8: $30,000 per year
Salvage value in 8 years : 25,000

Note: all calculations are approximated to the nearest $100

Option A= keep the old piece of equipment for one more year
Option B= buy the new piece and sell the old piece of equipment


A forecasted increase in metal prices has encouraged the ABC Resource Company to consider the expansion of the capacity in one of its mine operations in Northern Ontario. For this purpose, the following after –tax cash flow estimates have been made:

Existing capacity: positive after tax annual cash flows of $12.5 millions over the remaining 10-year mine life.

Expanded Capacity: $ 21.5 million capital expenditure now ( time 0 ), followed by positive annual cash flows of $20 million over the remaining & year mine life.

(I) Determine the distribution of after-tax cash flows, as well as the rate of return associated with the consider investment for expanding the production capacity.

(II) If the company’s cost of capital is 30% and it is considering selling the mine. What should its minimum acceptable selling price be? What capacity option did you choose (existing or expanded) and why ?

(III) What would your choice be (existing or expanded capacity if the ABC Resources company’s cost of capital is 20%?) describe your answer.


An industrial drill costs $60.000 to purchase and $10,000 to install seven years ago. The market value now is $33.000 and this will decline by 12% of current value each year for the next 3 years. Operating and maintenance costs are estimated to be $3400 this year, and are expected to increase by $500 per year. How much should the EAC (Equivalent annual cost) of a new drill be over its economic life to justify replacing the old one sometime in the next three years? The MARR is 10%


(i) Describe the difference between the balance sheet and the income statement in financial statements of companies.
(ii) Give two exs of intangible assets and two exs of fixed assets
(iii) Which of the following represents a liability: (a) inventory (b) accounts payable (c) Retained earnings (d) accounts receivable (e) all of the above

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M9614

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