QUESTION #7 Capital Budgeting Creative Impulse has done development work on an exci "Puise has done development work on an exciting new product. Yuppo. To date, it has spent $1,000,000 on research and development and is wondering whether or not to continue ent and is wondering whether or not to continue the development and eventual production of Yuppo. The work to date has no value except to Create development and production of the product. no value except to Creative Impulse for the further It is expected that another $400,000 will be incurred in develenment work over the next year at wad will be capitalized along with the equipment that will be purchased (one year from today product. The cost of the equipment is estimated at $1,000,000. process in an unused warehouse. The unused Creative Impulse will house the equipment and new production process in an unused warehouse warehouse could have been rented out at $100.000 per vear, but the comnany had elected to keep it under until now. Cash flow before taxes and CCA is estimated at $500.000 per vear over the ten years of Yuppo's product me. Working capital requirements necessitated by this new product line will increase by $75,000. Potential salvage value of the Yuppo equipment is $100.000 eleven years from today. CCA rate: Tax rate: Cost of capital: 40 39 159 Should Creative Impulse continue the development and production of Yuppo