Question 6 Jocelyn Chen & Bosco Lau Toys has developed a new children's toy. The project...

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Question 6 Jocelyn Chen & Bosco Lau Toys has developed a new children's toy. The project will last for 4 years. The total sales for the first year are $20,000 and the annual real growth rate of total sales is 20%. Operating costs are expected to be 40% of the sales revenues. Sales and operating costs numbers are presented in the following table: Year 0 Items Total sales Operating costs 0 0 1 20000 8000 2 3 4 24000 28800 34560 9600 17280 20736 The product requires an immediate investment of $60,000 in plant and equipment today. The expected nominal salvage value of the plant and equipment at the end of 4 years is $0. Plant and equipment is depreciated at 20% per year. The standard half-year depreciation rule applies. The corporate tax rate is 40% and annual discount rate for all cash flows is 12%. a. Compute the Initial UCC, annual CCA and End of Year UCC. Put your numbers in the following table: Year Initial UCC CCA Ending UCC 1 30000 2 54000 30000*20% = 6000 54000*20% 24000 = 43200 10800 3 43200 43200*20% = 8640 34560 4 34560 6912 27648 b. Compute the operating cash flows for each year. c. What is the NPV of this project? Should the firm undertake it? Question 6 Jocelyn Chen & Bosco Lau Toys has developed a new children's toy. The project will last for 4 years. The total sales for the first year are $20,000 and the annual real growth rate of total sales is 20%. Operating costs are expected to be 40% of the sales revenues. Sales and operating costs numbers are presented in the following table: Year 0 Items Total sales Operating costs 0 0 1 20000 8000 2 3 4 24000 28800 34560 9600 17280 20736 The product requires an immediate investment of $60,000 in plant and equipment today. The expected nominal salvage value of the plant and equipment at the end of 4 years is $0. Plant and equipment is depreciated at 20% per year. The standard half-year depreciation rule applies. The corporate tax rate is 40% and annual discount rate for all cash flows is 12%. a. Compute the Initial UCC, annual CCA and End of Year UCC. Put your numbers in the following table: Year Initial UCC CCA Ending UCC 1 30000 2 54000 30000*20% = 6000 54000*20% 24000 = 43200 10800 3 43200 43200*20% = 8640 34560 4 34560 6912 27648 b. Compute the operating cash flows for each year. c. What is the NPV of this project? Should the firm undertake it?