Shrek Casting Company is considering adding a new line to its product mix. The production line would be set up in unused space in Shrek's main plant. The machinerys invoice price would be approximately $210,000; another $15,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and would be a class 8 with a 20% CCA rate. The machinery is expected to have a salvage value of $15,000 after 4 years of use.

The new line would generate incremental sales of 1,300 units per year for four years at an incremental cost of $125 per unit in the first year, excluding depreciation. Each unit can be sold for $225 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firms net operating working capital would have to increase by an amount of $35,000. The firms tax rate is 29%, and its overall weighted average cost of capital is 11 percent.

I. Utilize the Components Cash Flows Approach to analyze Shrieves new product project Your Name(s) INPUT DATA r=11% T= 29% d = CCA rate = Machine Cost = 210,000 Shipping Cost = Installation cost = Change in NOWC = \# Units = Price = Costs = Inflation = Salvage Value = Economic life = Key Output: NPV=$ (210.00) \begin{tabular}{|l|c|} \hline A. Initial Outlay (in 1000s) & \\ \hline New Machine Cost & 210.00 \\ \hline Plus: Setup \& Training & - \\ \hline Capital Cost & 210.00 \\ \hline Change in NOwC & - \\ \hline Initial Investment CF & 210.00 \\ \hline \end{tabular} NPV = Investment Outlay + PV Project CF + PV CCATS + PV Ending CF Investment Outlay $ {210.00] PV of Operating CF PV CCATS PV Ending CF NPV of project $(210.00) PROJECT Decision: ACCEPT/REECT