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Cost Cutting : CBD Inc, a processor of CBD oils, is analyzing a potential opportunity to cut costs. It can spend $1,500,000 today on the

Cost Cutting: CBD Inc, a processor of CBD oils, is analyzing a potential opportunity to cut costs. It can spend $1,500,000 today on the purchase and installation of a new automated processing line. The equipment will have a six-year life, at which time it can be sold for $250,000. The equipment qualifies as a Class 8 asset with a 20% CCA rate. Since the equipment was be purchased in 2017, it was subject to the half-year rule. The benefit of installing the new equipment is a reduction in labor costs of $400,000 per year. The new process will lead to an immediate increase in Net Working Capital (NWC) of $25,000, which will be recovered at the conclusion of the project. The firm has a 30% corporate tax rate and it wants a 20% return. Should they undertake this cost-cutting program?

What is the NPV for the project?

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