Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
Robo Vancouver Ltd is a leading high - tech company which is incorporated in Delta, BC . The company wants to add a lab equipment
Robo Vancouver Ltd is a leading hightech company which is incorporated in Delta, BC The company wants to add a lab equipment in June 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: The approximate cost of the machine would be $ with another $ in shipping charges. It would also cost an additional $ tuning fees and $ for the installation parts. The equipment would be set up in an unused space at the companys main plant. The plant space could be leased out to another lab for $ per year. The machinery has an economic life of years, but the manager didnt know the CCA classification and CCA rate. He estimated that the machinery is expected to have a zero salvage value for a quick estimation. The new product line would generate incremental sales of units per year for years and they are expected to grow per year. The variable cost per unit is estimated in $ per unit in the first year. Each unit can be sold for $ in the first year. The sales price and cost are both expected to increase due to inflation. The fixed costs are estimated to be $ 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 years. The company hired workers to operate the new equipment and provided them hours paid training according to BC minimum wage. The training includes hours general safety training and hours specific training on how to operate the machine. They will work on the production line hours per week under a fiveyear contract with working days paid leave. The manager estimated the inventory level will increase of the total sales every year due to expansion. The accounting teams said the new project wont affect AR and AP accounts in the future years. The company received $ Research fund from BC government and decided to use of them to do market research on the new project. It has also spent of the funding to attend conferences and expos. The manager has concerns about the potential effects on other products when introducing the new equipment. Currently, he estimated a increase in sales revenue. The firm is a small business which taxable revenue under $ 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 including $ interest paid every year. Questions Write 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. State the steps and process of Capital Budgeting. Whats the definition of sunk cost? Which cash flows is the sunk cost in the case and why? Whats the definition of opportunity cost? Which cash flows is the opportunity cost in the case and why? Whats the definition of externality? Which cash flows is the externality in the case? Are they positive or negative? Whats definition of NOWC? Which cash flows reflect the change of NOWC in the case? Whats CCA in Canadian accounting practice. Estimate the CCA class of the asset in the case and explain. Why is the interest included in the cash flow estimation? Whats the current interest rate of business loan in BC now? Include reference websites where you obtain the data. Is wage a direct cost or an indirect cost? How mush is the minimum wage in BC currently? Include reference websites where you obtain the data. Why is tax shield important in a business operation? How much is business tax rate in BC and Federal? Include reference websites where you obtain the data. Will inflation be included in cash flow estimation? Whats mot recent inflation rate in Canada? Include reference websites where you obtain the data
Robo Vancouver Ltd is a leading hightech company which is incorporated in Delta, BC The
company wants to add a lab equipment in June 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:
The approximate cost of the machine would be $ with another $ in
shipping charges. It would also cost an additional $ tuning fees and $ for the
installation parts.
The equipment would be set up in an unused space at the companys main plant. The
plant space could be leased out to another lab for $ per year.
The machinery has an economic life of years, but the manager didnt know the CCA
classification and CCA rate. He estimated that the machinery is expected to have a zero
salvage value for a quick estimation.
The new product line would generate incremental sales of units per year for years
and they are expected to grow per year.
The variable cost per unit is estimated in $ per unit in the first year. Each unit can be
sold for $ in the first year.
The sales price and cost are both expected to increase due to inflation. The fixed costs are
estimated to be $ 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 years.
The company hired workers to operate the new equipment and provided them hours
paid training according to BC minimum wage. The training includes hours general
safety training and hours specific training on how to operate the machine. They will
work on the production line hours per week under a fiveyear contract with
working days paid leave.
The manager estimated the inventory level will increase of the total sales every year
due to expansion. The accounting teams said the new project wont affect AR and AP
accounts in the future years.
The company received $ Research fund from BC government and decided to use
of them to do market research on the new project. It has also spent of the
funding to attend conferences and expos.
The manager has concerns about the potential effects on other products when introducing
the new equipment. Currently, he estimated a increase in sales revenue.
The firm is a small business which taxable revenue under $ 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 including $ interest paid every year.
Questions
Write 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.
State the steps and process of Capital Budgeting.
Whats the definition of sunk cost? Which cash flows is the sunk cost in the case and why?
Whats the definition of opportunity cost? Which cash flows is the opportunity cost in the case and
why?
Whats the definition of externality? Which cash flows is the externality in the case? Are they positive
or negative?
Whats definition of NOWC? Which cash flows reflect the change of NOWC in the case?
Whats CCA in Canadian accounting practice. Estimate the CCA class of the asset in the case and
explain.
Why is the interest included in the cash flow estimation? Whats the current interest rate of business
loan in BC now? Include reference websites where you obtain the data.
Is wage a direct cost or an indirect cost? How mush is the minimum wage in BC currently? Include
reference websites where you obtain the data.
Why is tax shield important in a business operation? How much is business tax rate in BC and Federal?
Include reference websites where you obtain the data.
Will inflation be included in cash flow estimation? Whats mot recent inflation rate in Canada? Include
reference websites where you obtain the data
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started