conduct an npv analysis to determine whether your decision to go ahead with the proj 544071 | Homework Solutions

Integrative You are exploring the possibility of starting a project involving production of an assortment of spicy curried pickles. You had approached a marketing consultant to conduct market research and do a one-year feasibility study for $25,000. The recommendations of the study ore positive, and you have decided to begin work on the project. You expect the life of the project to be six years. The initial investment in the project is expected 10 be as follows:

Land: $150,000

Buildings: $350,000

Manufacturing equipment: $250,000

Net working capital: $40,000

For CCA computation, the belong to asset Class I and the manufacturing equipment is in asset Class 39, with applicable CCA rates of 4 percent and 25 percent, respectively. At the end of the project”s economic life, you expect to be able to sell the buildings and land for $450,000 (the value of the land is expected to remain unchanged). The manufacturing equipment is, however, expected to have a salvage value of only $125,000. Net working capital requirements for each year are expected to increase by 10 percent from the previous year. Your business will be taxed at 35 percent.

In the first year, you expect to sell 30,000 units of the gannet pickles in bol1lcdjors. In each subsequent year, unit sales are expected to increase by 4 percent. You ha”e decided to price the pickles at S8.50 for each jar in the first year. You intend to adjust the price in subsequent years to keep up with inflation