Shrieves Casting Company is considering adding a new line to its product mix. The production line would be set up in a section of Shrievess main plant. This section is currently being rented out to an outside party for $25,000 per year. The machinerys invoice price would be $200,000, another $10,000 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 in Class 8 with a CCA rate of 20%. The machinery is expected to have a salvage value of $25,000 after 4 years of use. Furthermore, to handle the new line, the firms net operating working capital would increase by $35,000.

The new line would generate sales of 1,250 units per year for 4 years. The Selling price per unit is $200 and the Cost per unit is $100

The firms tax rate is 28%, and its overall weighted average cost of capital is 10%.

Find the following:

Capital cost of the equipment

Initial working capital requirement

Sales

Cost of goods sold

Before tax cash inflows

After-tax cash inflows

Present value of cash outflows

Total present value of cash outflows

Present value (P.V) of cash inflows

P.V of annual after-tax cash inflows

P.V of salvage value

P.V of working capital recovered

P.V of CCA tax shield

Total P.V of cash inflows

NPV and decision

Net present value

Should the project be undertaken? yes or no?