Alberta Service Supplies is looking to expand its business. The new business is expected to generate $2.75 million per year in sales over the next 5 years. Annual costs would increase by $2.5 million. An investment in working capital of $90,000 would have to be made initially. The machinery (CCA rate of 30%) would cost $550,000, with additional costs of $45,000 to be incurred for setup and training. They also estimate that it would be possible to sell the equipment for 20% of its initial value at the end of 5 years. The company would set up operations in a building it does not use but currently rents out for $70,000 per year. If the firm's cost of capital is 13% and its marginal tax rate is 35%, should it proceed with this new business?

Equipment cost
Setup and training
Investment in NWC
A. Initial Investment

Yr	1	2	3	4	5
Sales
Less forgone rental Income
Costs
Project cash flows before tax
Tax
Project cash flows after tax
B. PV of Cash Flows After Tax