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Roni Smart Ltd is a leading high-tech company which is incorporated in Surrey, BC. The company wants to add a lab equipment in Dec 2023. They hired you,to prepare a capital budgeting plan for the project. Do you recommend the company to accept the project or not? Below is the information that your manager provided:

1. The approximate cost of the machine would be $210,000, with another $10,500 in shipping charges. It would also cost an additional $3,000 tuning fees and $10,000 for accessories.

2. The equipment would be set up in an unused space at the companys main plant. The plant space could be leased out to another lab for $11,000 per year.

3. The machinery has an economic life of 4 years, but the manager didnt know the CCA classification and CCA rate. He estimated that the machinery is expected to have a zero- salvage value for a quick estimation.

4. The new product line would generate incremental sales of 1,350 units per year for 4 years and they are expected to grow 3.5% per year.

5. The variable cost per unit is estimated in $45 per unit in the first year. Each unit can be sold for $210 in the first year.

6. The sales price and cost are both expected to increase due to inflation. The fixed costs are estimated to be $90,000 per year and would increase with inflation. The manager ask you to do the research about the inflation rate in recent years.

7. The company hired 3 workers to operate the new equipment and provided them 80 hours paid training according to BC minimum wage. The training includes 20 hours general safety training and 60 hours specific training on how to operate the machine. They will work on the production line 35 hours per week under a four year contract with a 15 working days paid leave.

8. The manager estimated the inventory level will increase 5% of the total sales every year due to expansion. The accounting teams said the new project wont affect A/R and A/P accounts in the future 4 years.

9. The company received $30,000 Research fund from BC government and decided to use 20% of them to do a market research on the new project. It has also spent 30% of the funding to attend conferences and expos.

10. The manager has concerns about the potential effects on other products when introducing the new equipment. Currently, he estimated a 2.5% decrease in sales revenue.

11. The firm is a small business which taxable revenue under $300,000. The financial department considers the project to be as risky as the company.

The financial department has estimate that the total WACC is 12% including $8,000 interest paid every year.

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