Question $3(30$ marks$)$

Board Gear Corp. $($BG$)$ is considering manufacturing a new model of paddleboard. This project would require an investment in equipment of $\backslash (\backslash$$ $315,000\backslash )$ plus an additional $\backslash (\backslash$$ $32,000\backslash )$ in working capital. The equipment is in the $\backslash (20\backslash \%\backslash )$ CCA rate class, and BG has a tax rate of $\backslash (25\backslash \%\backslash ).$ They believe the salvage value is $\backslash (\backslash$$ $30,000\backslash ).$ BG thinks they can sell $200$ boards a year for $5$ years, after which the working capital will be recovered. The boards will sell for $\backslash (\backslash$$ $1,800\backslash )$ each. Fixed yearly manufacturing costs are $\backslash (\backslash$$ $90,000\backslash ),$ and variable costs are $\backslash (\backslash$$ $600\backslash )$ per board. BG$\text{'}$s cost of capital is $\backslash (12\backslash \%\backslash ).$

Assume working capital is returned at the end of five years. Assume all cash flows occur at the end of the year.

Required

A$.$ Calculate the required cash outlay for the investment. $(5$ marks$)$

B$.$ Calculate the cash flows from operations without considering the CCA tax savings. $(5$ marks$)$

C$.$ Calculate the present value of the cash flows from operations without considering the CCA tax savings. $(10$ marks$)$

D$.$ Calculate the CCA tax savings using the formula in your textbook on page $851.(8$ marks$)$

E$.$ What is the final NPV of the project? Should they go ahead with the project? $(2$ marks$)$