Question 1 (16 marks) Toronto Corporation is considering a 6 year project involving the production of portable hard drives. The project requires the following immediate investment: land $800,000, net working capital $70,000, and 10 machines used in production will cost $40,000 per machine. The allocated overhead charged to this project by the cost accountants is $50,000 per year. Each machine is expected to produce 3,500 hard drives every year for 6 years. The sales department is forecasting that all units produced each year will be sold at $55 per unit. Variable costs will be 40% of the unit price. In the rst year, the xed cost of the project is $1,000,000 and it is expected to decrease by 5% in each subsequent year. Net working capital will be constant for the life of the project. The rm expects to be able to sell the land and all the machines at the end of the project for $800,000 and $200,000, respectively. The machines are subject to a CCA rate of 25%. The land cannot be amortized for tax purposes. Assume that book values of the machines are greater than their salvage values and there are many assets in the class. The rm's tax rate is 35% and the cost of capital is 12%. a. Prepare a table that includes all the relevant cash ows of this project. (10 marks) b. Calculate the NPV of this project. Is the project recommended according to the NPV rule? (3mark) c. What are the problems with the payback rule as an investment criterion? Please describe at least two pitfalls. (No calculations required in this part) (3 marks) . # m .4