PROPOSED PROJECT Sales Volume: 10,000 units annually over 5 years Price per unit: $9,000 Variable costs per unit: $6,000 Fixed costs: $10 million annually Initial Costs Marketing study Purchase of Land Building factory Other start up costs (fully deductable) Net working capital $100,000 $2 million $30 million $1 million $5 million The factory consists of the following: Value Building Equipment $5 mil $25 mil CCA Class 3 8 d CCA Rate 5% 20% At the end of the project the factory will be sold for $12 million as follows: Building $4 mil Equipment $8 mil The value of the land is expected to increase by 6% annually over the life of the project. Surrey pays taxes at 40% Surrey uses a 15% discount rate on projects such as this one. Required: Advise whether or not Surrey Ltd. should make the investment.

Answer rating: 100% (QA)

To determine whether Surrey Ltd should make the investment we need to calculate the net present value NPV of the project The NPV considers the present ... View the full answer