RSM332H1 Lecture Notes - Capital Requirement, Scenario Analysis
Document Summary
Suppose you have a project which requires an initial investment (in a piece of equipment) of. The equipment has a cca rate of 0. 3. 3, the equipment will be sold for ,000. The project will reduce production cost by ,000 per year. An additional amount of ,000 is required for year 1. All will be recovered at the end of year 3. The tax rate is 40% and the discount rate is 10%. The company reviewed its assumptions and determined that worst case scenario would involve a reduction in production costs of 50,000 yearly and an working capital requirement of ,000. Best case scenario would involve the same cost reduction; the initial wc requirement will be. ,000, with no additional wc requirements; discount rate will change to 8%.
