The Edmonton Fabricating Company $($EFC$)$ manufactures snow blowers. EFC is investigating the

feasibility of a new line of cordless snow blower.

The new manufacturing equipment to produce the new line of snow blower will cost $$750,000.$ The

installation costs are expected to be $$25,000$; the setup costs are expected to be $$30,000$ and the

training costs are expected to be $$15,000.$ The company has just finished a marketing feasibility and

this study strongly endorses going ahead with a further financial study to evaluate the overall

feasibility of the project. The cost of the marketing study was $$35,000.$

The projected useful life of the new equipment is $8$ years, and the project unit sales are expected to be:

YEAR UNIT SALES

$13,000$

$23,300$

$33,500$

$43,700$

$54,000$

$64,250$

$74,300$

$84,300$

The new cordless snow blower would be priced to sell at $$250$ per unit and the variable operating

costs are expected to be $50\%$ of sales. After the first year, the sales price is estimated to increase by $3\%$

every year. The total fixed operating costs are expected to be $$200,000$ per year and would remain

constant over the life of the project.

The project would require $$45,000$ in working capital at the start $($time period zero$).$ The estimated

salvage value of the equipment after $8$ years is $$55,000.$ The marginal tax rate is $35\%.$ The CCA rate of

the equipment is $30\%.$

The company uses the DCF model to determine the cost of retained earnings and new common stock.

You have been provided with the following data: D$0=$ $$1\mathrm{.}00$; P$0=$ $$25\mathrm{.}00$; g $=7\mathrm{.}00\%($constant$)$ and

F$=10\mathrm{.}00\%.$

The company$$s $8\mathrm{.}00\%$ coupon rate, semi$-$annual payment, $$1,000$ par value bond that matures in $20$

years sells at a price of $$1,100.$ The new bonds would be privately placed with no flotation costs.

The target capital structure is $50\%$ debt, $30\%$ common equity $($retained earnings$)$ and $20\%$ equity

$($new common stock$).$

REQUIRED:

What is the net present value of this project? Should the project be undertaken by

Edmonton Fabricating Company $($EFC$)?$ Please show the full calculation on excel format