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apital Budgeting he Majestic Mulch and Compost Company (MMCC) is investigating the feasibility of a new line onversation with buyers for large garden shops, the

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apital Budgeting he Majestic Mulch and Compost Company (MMCC) is investigating the feasibility of a new line onversation with buyers for large garden shops, the company projects unit sales as follows: ower mulching tools aimed at the growing number of home composters. Based on explorator Unit sales 3,000 5,000 6,000 6,500 6,000 5,000 4,000 3,000 Year 4 8 The new power mulcher would be priced to sell at $120 per unit to start. When the competition catches up after three years, however, the company anticipates that the price would drop to $110. The power mulcher project requires $20,000 net working capital at the start (year 0). Subsequently, total net working capital at the end of each year would be about 15 percent of sales for that year. The variable cost per unit is $60, and total fixed costs are $25,000 per year. ts about $800,000 to buy the equipment necessary to begin production. This investment is primarily in industrial equipment and thus falls in class 8 with a CCA (Capital cost allowance) rate of 20 percent. The equipment will actually be worth about $150,000 in eight years. The relevant tax rate is 40 percent, and the required rate of return is 15 percent. Based on this in proceed for capital investment in this project? formation, should MMCC

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