Shrieves Casting Company is considering adding a new line to its product mix, and the capital

budgeting analysis is being conducted by Sidney Johnson, a recent business school graduate.

The production line would be set up in unused space in Shrieves's main plant. The machinery's

invoice price would be approximately $200,000, another $10,000 in shipping charges would be

required, and it would cost an additional $30,000 to install the equipment. The machinery has

an economic life of 4 years and would be in Class 8 with a CCA rate of 20%. The machinery is

expected to have a salvage value of $25,000 after 4 years of use.

The new line would generate incremental sales of 1,250 units per year for 4 years

at an incremental cost of $100 per unit in the first year, excluding depreciation. Each

unit can be sold for $200 in the first year. The sales price and cost are both expected

to increase by 3% per year due to inflation. Furthermore, to handle the new line, the

firm's net operating working capital would have to increase by an amount equal to 12%

of sales revenues. The firm's tax rate is 28%, and its overall weighted average cost of

capital is 10%.

A) Construct annual incremental project operating cash flows. (Show inflows & outflows)

B) Calculate the present value of the CCA tax shield.

C) Estimate the required net operating working capital for each year and the cash flow due to investments in net operating working capital.

Please show how you did your work, thank you.