Robo Vancouver Ltd is a leading high$-$tech company which is incorporated in Delta, BC$.$ The

company wants to add a lab equipment in June $2024.$ They hired you, a UCW graduate, 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 $$220,000,$ with another $$9,500$ in

shipping charges. It would also cost an additional $$3,500$ tuning fees and $$10,000$ for the

installation parts.

$2.$ The equipment would be set up in an unused space at the company$$s main plant. The

plant space could be leased out to another lab for $$12,000$ per year.

$3.$ The machinery has an economic life of $5$ years, but the manager didn$$t 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 $1,380$ units per year for $5$ years

and they are expected to grow $3\%$ per year.

$5.$ The variable cost per unit is estimated in $$42$ per unit in the first year. Each unit can be

sold for $$200$ 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 $$89,000$ per year and would increase with inflation. The manager asks

you to do the research about the inflation rates in past years and make a forecast for the

future $5$ years.

$7.$ The company hired $3$ workers to operate the new equipment and provided them $60$ hours

paid training according to BC minimum wage. The training includes $30$ hours general

safety training and $30$ hours specific training on how to operate the machine. They will

work on the production line $35$ hours per week under a five$-$year contract with $15$

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 won$$t affect A$/$R and A$/$P

accounts in the future $5$ years.

$9.$ The company received $$30,000$ Research fund from BC government and decided to use

$30\%$ of them to do market research on the new project. It has also spent $20\%$ 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 $1\mathrm{.}5\%$ increase in sales revenue.

$11.$ The firm is a small business which taxable revenue under $$300,000.$ The project is

considered by the financial department 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.

Questions

Write $5$ or more complete sentences for each question in a Word file. Do not write in an essay format.

References are not necessary unless the questions require. No word limitation in this part.

$1.$ State the steps and process of Capital Budgeting.

$2.$ What$$s the definition of sunk cost? Which cash flow$($s$)$ is the sunk cost in the case and why?

$3.$ What$$s the definition of opportunity cost? Which cash flow$($s$)$ is the opportunity cost in the case and

why?

$4.$ What$$s the definition of externality? Which cash flow$($s$)$ is the externality in the case? Are they positive

or negative?

$5.$ What$$s definition of NOWC? Which cash flow$($s$)$ reflect the change of NOWC in the case?

$6.$ What$$s CCA in Canadian accounting practice. Estimate the CCA class of the asset in the case and

explain.

$7.$ Why is the interest included in the cash flow estimation? What$$s the current interest rate of business

loan in BC now? Include reference website$($s$)$ where you obtain the data.

$8.$ Is wage a direct cost or an indirect cost? How mush is the minimum wage in BC currently? Include

reference website$($s$)$ where you obtain the data.

$9.$ Why is tax shield important in a business operation? How much is business tax rate in BC and Federal?

Include reference website$($s$)$ where you obtain the data.

$10.$ Will inflation be included in cash flow estimation? What$$s mot recent inflation rate in Canada? Include

reference website$($s$)$ where you obtain the data