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c Snow Inc. has developed a powerful efficient snow blower that is significantly less polluting than existing snow blowers currently on the market. The company spent developing this product and the marketing department spent another g 50,000 to assess the market demand. It would cost S25 million at Year O to buy the equipment necessat' to manufacture the efficient snow blower. The project would require net working capital at the beginning of each year equal to 20% of sales (NOWCO = NOWCI = 20%(SaIes2), etc.). Ihe efficient snow blowers would sell for S3,500 per unit, and the company believes that variable costs would amount to S990 per unit. The 14 company expects that the sales price and variable costs would increase at the inflation rate of 4% after year I. The company's non-variable costs would be 900,000 in Year I and are expected to increase with inflation. The efficient snow blower project would have a life of 4 years. If the project is undertaken, it must be for the entire 4 years. Also, the project is expected to be of average risk. The firm believes it could sell 3,500 units per year. Ihe equipment would be depreciated using a CCA rate of 30%. The estimated market value of the equipment at the end of the project's 4- year life is its undepreciated capital cost (i.e. book value) at the end of year 4. The company has other assets in this asset class. Its federal- plus-provincial tax rate is 30%. Its cost of capital is 7% for average risk projects. Low-risk projects are with a WACC of 6%, and 15 hi -risk 16 19 Part I. ects at 10%. Assume that the half- rule es to the CCA. eet and use it to find the NPV, IRR, and t Data in thousands of dollars ex for unit amount Equipment cost Net Operating WC/saIes 27 Yearly sales (in units 28 Sales price per unit 29 Variable cost per unit Non-variable costs Part2. CCA Schedule Beg. CCC CCA 36 End UCC 37 38 Tax rate WACC CCA rate year I year 2 year 3 year 4