15. The TTC is considering investing in a new cane manufacturing machine that has an estimated life of five years. The cost of the machine is $27729 and the machine will be depreciated based on a class 8, 20-percent rate. The after tax salvage value is expected to be $27729/2.7.

The cane manufacturing machine will result in sales of 2308 canes in year 1. Sales are estimated to grow by 10% per year each year through year five. The price per cane that TTC will charge its customers is $18 each and is to remain constant. The canes have a cost per unit to manufacture of $6 each.

The firm is in the 21% tax bracket, and has a cost of capital of 10%.

a) The Net Income in the second year for TTCs project is closest to?

The Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It is estimated that TTC needs to hold 2% of its annual sales in cash, 4% of its annual sales in accounts receivable, 9% of its annual sales in inventory, and 6% of its annual sales in accounts payable, which can be fully recovered after the project ends.

b) What is the present value of the Investment Cash Flows of the project?

c) What is the present value of the tax shield in CCA of the project?