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Red Rock Lobster (RRL) is looking to expand its business. The new business would generate $2.0 million per year in sales over the next 5
Red Rock Lobster (RRL) is looking to expand its business. The new business would generate $2.0 million per year in sales over the next 5 years. Annual costs would increase by $1.7 million. An investment in net operating working capital of $50,000 would have to be made initially. The machinery (CCA rate of 30%) would cost $600,000, with additional costs of $10,000 and $20,000 to be incurred for setup and installation. RRL estimates that it would be possible to sell the equipment for 15% of its initial value at the end of 5 years. The company would set up operations in a building it does not use but does rent out for $80,000 per year. If RRLs cost of capital is 10% and its tax rate is 30%, should it proceed with this new business
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