ExcelTools has been considering a special investment for some time. It paid $80,000 to a research firm to study the market for the product of this special investment. The project will require an immediate capital expenditure of $1 million for required equipment. ExcelTools will house the equipment in an unused warehouse. The company has no other intended use for the warehouse. The project provides $1.5 million in revenues annually for two years. The fixed cost is $300,000 per year and the variable cost is 40 percent of the revenue. The project requires $400,000 in net working capital to start. ExcelTools expects its net working capital for this project to decrease to $150,000 in year 1 and recover all its working capital by the end of the project. This equipment falls into Class 8 for tax purposes (20 percent). In two years, this equipment can be sold for $350,000. The discount rate is 12 percent and the tax rate is 30 percent. What is the operating cash flow (excluding CCA tax shield) each year?

Select one:

a. $420,000

b. $472,500

c. $682,500

d. $630,000

For the previous question, how much are the investments in net working capital in years 0, 1, and 2?

Select one:

a. -$400,000; $150,000; $250,000

b. -$400,000; $150,000; $0

c. -$400,000; $250,000; $150,000

d. -$400,000; $250,000; $0

For the previous questions, how much are the total cash flows (excluding CCA tax shield) in years 0, 1, and 2?

Select one:

a. -$1,480,000; $570,000; $1,020,000

b. -$1,400,000; $670,000; $920,000

c. -$1,400,000; $670,000; $570,000

d. -$1,400,000; $622,500; $1,022,500

For the previous questions, what is the present value of the CCA tax shield for the equipment?

Select one:

a. $125,139.51

b. $132,613.20

c. $75,781.25

d. $177,455.36

For the previous questions, what is NPV of the project? Use NPV rule to decide whether to accept this project.

Select one:

a. NPV = $47,205.84. Accept

b. NPV = $103,547.51. Accept.

c. NPV = $56,772.16. Accept.

d. NPV = -$68,367.35. Reject