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This casellustrates a new expansion project of an IT company w Tech where the company de invest to increase sales and market share. Assume W-Tech's research and development department has been applying its expertise in microprocessor technology to develop a small computer designed to control home appliances. Once programmed, the computer will automatically control the best and air-conditioning systems, security system, hot water heater and small appliances coffeemaker. By increasing the home's energy efficiency, the computer can cat cos esough to pay for tell within a few years Development has reached the stage where a decision must be made about whether to go forward with full scale production W.Tech believes that if the new project goes in operation, the annual sales would be 25,000 units debe units were priced at $2.500 each, so annual sales are estimated $62.500,000. W Tech expects ne pou in unit sales, and it believes that the unit price will be by 3s each year. The engineering department has reported that the project will require additional manufacturing and W-Tech current option to purchase an eating building at a cost of $12.000.000, that would meet this need. The building would be bought and paid for on December 11, 2001. The building fall into CBA Commons 10rate for purposes The necessary equipment would be purchased and installed in 2001, and it would be pad for an December 31, 2001. The equipment falls into CRACs 43/30 te for Action The would com 56.800.000 and would require $200,000 for shipping and installation. CCA may be claimed on the purchase price of an asset por any shipping and installation costs The project's estimated economice years. At the end of that time, the building is expecte have a resale value of $30,000,000. The equipment will have a salvage value of 1.800.000 The production department has estimated that variable manufacturing costs would be 52,300 per and that fund overhead costs would be $8,000,000 a year. They expect variable store bye Year and food costs to rise by per yea W-Tech's tax rates for capital budgeting purpose the company's policy is to asume that operating cash flows or the end of each year. Asume that Tech must have an amount of net operating working capital oC) and to the upcoming year's sales. Because the plant would begin operations on January 2022. the finity of operating cash flow would and on December 31, 2022 W-Tech is a large company who has multiple products, if the new project does not workout, not bankrupt the company, the promis accepted the company will be contractually led to operate infos full epeat Ife. Iets on this project would be positively correlated with W-Tech's other projects and also with the stock market Assume that you have been assigned to conduct the capital budgeting analysis. Asume that there has the same risks an average project and use the corporate weighted average cost of capital Using the above information answer the following question 1. Calculate for W-Tech's Capital Cost Allowance CCA) for the yean 2002, 202, 2034 and 2035 using the following schedule. Explain if you have used a half year or a full year note of CRA for CCA ako Year Building Equipment UOCO CCA VC VCC CCA Utter before CCA before CCA CCA CCA 2012 20:23 2034 2025 "UCC undepreciated capital cost 2 Calculate Project's operating income before tax over the Projecte Calculate Project's the operating cash flows over the Project's ite 4. Fied Project's net cash flow over the project's site. What is project's initial costs? Draw a timeline for this project showing all cash flows and the cost of capital What is your appraisal for the proposed project? Answer this question based on fut Presenta INV1.Internal Rate of Return R. Modified IRM), and ceria 7. Finally make a dechion based on NPV, IRR MR and Peter whether you would propose wech to accept or reject the project. Explain why have you made this decision Hint: You should follow "The Analysis of an Expansion Projecrin pages 338-341 at you textbook. Construct similar tabletite Tables 114 Part 1, Part 2.Turtland Part This casellustrates a new expansion project of an IT company w Tech where the company de invest to increase sales and market share. Assume W-Tech's research and development department has been applying its expertise in microprocessor technology to develop a small computer designed to control home appliances. Once programmed, the computer will automatically control the best and air-conditioning systems, security system, hot water heater and small appliances coffeemaker. By increasing the home's energy efficiency, the computer can cat cos esough to pay for tell within a few years Development has reached the stage where a decision must be made about whether to go forward with full scale production W.Tech believes that if the new project goes in operation, the annual sales would be 25,000 units debe units were priced at $2.500 each, so annual sales are estimated $62.500,000. W Tech expects ne pou in unit sales, and it believes that the unit price will be by 3s each year. The engineering department has reported that the project will require additional manufacturing and W-Tech current option to purchase an eating building at a cost of $12.000.000, that would meet this need. The building would be bought and paid for on December 11, 2001. The building fall into CBA Commons 10rate for purposes The necessary equipment would be purchased and installed in 2001, and it would be pad for an December 31, 2001. The equipment falls into CRACs 43/30 te for Action The would com 56.800.000 and would require $200,000 for shipping and installation. CCA may be claimed on the purchase price of an asset por any shipping and installation costs The project's estimated economice years. At the end of that time, the building is expecte have a resale value of $30,000,000. The equipment will have a salvage value of 1.800.000 The production department has estimated that variable manufacturing costs would be 52,300 per and that fund overhead costs would be $8,000,000 a year. They expect variable store bye Year and food costs to rise by per yea W-Tech's tax rates for capital budgeting purpose the company's policy is to asume that operating cash flows or the end of each year. Asume that Tech must have an amount of net operating working capital oC) and to the upcoming year's sales. Because the plant would begin operations on January 2022. the finity of operating cash flow would and on December 31, 2022 W-Tech is a large company who has multiple products, if the new project does not workout, not bankrupt the company, the promis accepted the company will be contractually led to operate infos full epeat Ife. Iets on this project would be positively correlated with W-Tech's other projects and also with the stock market Assume that you have been assigned to conduct the capital budgeting analysis. Asume that there has the same risks an average project and use the corporate weighted average cost of capital Using the above information answer the following question 1. Calculate for W-Tech's Capital Cost Allowance CCA) for the yean 2002, 202, 2034 and 2035 using the following schedule. Explain if you have used a half year or a full year note of CRA for CCA ako Year Building Equipment UOCO CCA VC VCC CCA Utter before CCA before CCA CCA CCA 2012 20:23 2034 2025 "UCC undepreciated capital cost 2 Calculate Project's operating income before tax over the Projecte Calculate Project's the operating cash flows over the Project's ite 4. Fied Project's net cash flow over the project's site. What is project's initial costs? Draw a timeline for this project showing all cash flows and the cost of capital What is your appraisal for the proposed project? Answer this question based on fut Presenta INV1.Internal Rate of Return R. Modified IRM), and ceria 7. Finally make a dechion based on NPV, IRR MR and Peter whether you would propose wech to accept or reject the project. Explain why have you made this decision Hint: You should follow "The Analysis of an Expansion Projecrin pages 338-341 at you textbook. Construct similar tabletite Tables 114 Part 1, Part 2.Turtland Part