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Snow Inc. has developed a powerful efficient snow blower that is significantly less polluting than existing snow blowers currently on the market. The company spent
Snow Inc. has developed a powerful efficient snow blower that is significantly less polluting than existing snow blowers currently on the market. The company spent $ developing this product and the marketing department spent another $ to assess the market demand. It would cost $ million at Year to buy the equipment necessary to manufacture the efficient snow blower. The
project would require net working capital at the beginning of each year equal to of sales NOWCO Sales NOWCI
Sales etc. The efficient snow blowers would sell for $ per unit, and the company believes that variable costs would amount to $ per unit. The company expects that the sales price and variable costs would increase at the inflation rate of after year I. The company's nonvariable costs would be S in Year and are expected to increase with inflation. The efficient snow blower project would have a life of years. If the project is undertaken, it must be continued for the entire years. Also, the project is expected to be of average risk. The firm believes it could sell units per year.
The equipment would be depreciated using a CCA rate of The estimated market value of the equipment at the end of the project's
year life is its undepreciated capital cost ie book value at the end of year The company has other assets in this asset class. Its federalplusprovincial tax rate is Its cost of capital is for average risk projects. Lowrisk projects are evaluated with a WACC of and highrisk projects at Assume that the halfyear rule applies to the CCA.
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