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answer is needed as soon as possible please Kanada lumber wants to take advantage of the hot lumber market. It has invested a lot of
answer is needed as soon as possible please
Kanada lumber wants to take advantage of the hot lumber market. It has invested a lot of time and money into researching the viability of the new "got lumber" project. To secure exclusivity to a proprietary design of new logging equipment the CEO of Kanada Lumber has placed a non- refundable deposit of $150,000. The cost of the deposit has been expensed. If the "got lumber" equipment is purchased it would require an immediate capital outlay of $999,000. The supplier has also advised that a significant upgrade will be available at the end of year 3. The upgrade will cost an additional $200,000. If they go ahead with the project they will also commit to the purchase of the upgrade. Kanada Lumber will use a vacant piece of land they currently have possession of to house the equipment. Kanada Lumber is aware they could lease this land to a local cattle farm for $75,000 per year. The equipment will need to go through an initial testing period of one year and then be put into use immediately, During years 1 to 3 cash expenses will be incurred in the amount of $200,000. The project will generate yearly revenues of $750,000 for years 2 - 12 inclusive. Cash Kanada Lumber will use a vacant piece of land they currently have possession of to house the equipment. Kanada Lumber is awa te they could lease this land to a local cattle farm for $75,000 per year. The equipment will need to go through an initial testing period of one year and then be put into use immediately. During years 1 to 3 cash expenses will be incurred in the amount of $200,000. The project will generate yearly revenues of $750,000 for years 2 -12 inclusive. Cash expenses would be reduced to $200,000 per year after the upgrade and will remain at that amount until the end of the project in year 12. The project will require $60,000 in working capital to operate at its peak performance. Due to the nature of the project a safety department will be required. Initial costs to setup the department will be $30,000 and will require the hiring of a safety officer at $35,000 per year for the duration of the project. All the equipment could be salvaged for $50,000 when the The project will require $60,000 in working capital to operate at its peak performance. Due to the nature of the project a safety department will be required. Initial costs to setup the department will be $30,000 and will require the hiring of a safety officer at $35,000 per year for the duration of the project. All the equipment could be salvaged for $50,000 when the project is completed at the end of year 12. Additional information CCA Rate: 30% Tax Rate: 32% WACC: 15% Required: Using the NPV approach, determine if Megalodon should proceed with this investment? Show all of your calculations Step by Step Solution
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