Stewiacke Ltd. is currently considering a project with a four-year life that it believes may return the company to profitability. Stewiacke recently did a market survey at a cost of $100,000. The market survey indicated that the consumer response to its new product is likely to be favourable.

The project will require an initial investment of $8 million: $4 million for a new building and $4 million for new equipment. Stewiacke also believes that to undertake the project, it will have to increase its investment in net working capital from $1 million to $1.5 million.

Stewiacke intends to build on a block of land that it purchased last year for $2 million. The land has a current market value of $2.5 million. If the land were sold today, Stewiacke would owe approximately $67,500 of income tax on the gain. Independent appraisers have indicated that it should be worth $2.9 million after taxes in four years.

The equipment is estimated to have a four-year useful life; at the end of its useful life, it is expected to have a salvage value equal to 15% of its original purchase price. The building is estimated to have a 15-year useful life; at the end of the 15 years, its salvage value is expected to be 25% of its original cost. At the end of Year 4, the building is expected to be worth 50% of its original cost. Both the building and equipment will be depreciated on a straight-line basis for accounting purposes.

The project is expected to generate gross revenues of $6 million per year, and the cost of goods sold is expected to remain constant at 55% of gross revenues. Finally, Stewiackes marginal tax rate is 27%, and the applicable CCA rates on the new building 10% and 20%, respectively, and additions qualify for the AII of 1.5 times the CCA rate in the year of acquisition. The equipment also qualifies for the 100% expensing option under the new tax rules from the 2021 federal, the annual CCA deduction is capped at $1.5 million. Assume there are still assets remaining in the UCC class and that there is a positive balance in the class even after the salvage proceeds are deducted. The appropriate discount rate for this project is 12%.

Required: Identify and calculate the relevant cash flows for use in a capital budgeting analysis, on an after-tax basis. Also identify any cash flows that might not be relevant and explain why.