Ivy Botanicals, a candle making company in Lethbridge Alberta has had huge success selling its fragrant candles.They
Question:
Ivy Botanicals, a candle making company in Lethbridge Alberta has had huge success selling its fragrant candles.They are considering doing an expansion that will allow them to setup a production and distribution facility in Nova Scotia to better serve the Eastern market.The company has put a $30,000 nonrefundable deposit on a building they are considering purchasing for their project.If they purchase the building for $800,000 it will take them a year to do all necessary preparations to begin producing candles.Ivy will purchase two state of the art candle machine machines at a price of $200,000 each.Final payment of the equipment will be due exactly one year after the acquisition of the building.An upgrade to the candle making machines will be required in year 5 in the amount of $75,000 (total for both machines). There will also be a working capital requirement of $30,000 upon the commencement of the project. Pre tax revenue of $350,000 will begin in the second year and remain the same until the end of the project in year 12.Pre tax expenses in the first year will be $100,000 then from year 2 to year 12 be $125,000.At the end of the project the building can be sold for $150,000 and both pieces of equipment can be salvaged for a total of 50,000.
Additional Information:
CCA rate building 4%
CCA rate Candle making machines 30%
Tax rate 25%
Cost of capital 15%
Required:
Using the NPV approach, I have to determine if Ivy Botanicals should proceed with the expansion.I have to Show all calculations.
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr