The management team at Zeta Technologies Inc. ("the Company") is considering whether to proceed with launching a new product in 2016. The product is a new kind of graphics chip which uses half the power of conventional graphic chips, thereby extending the battery life of computers. The new chip is expected to generate considerable interest among manufacturers of tablet and ultrabook computers. The following information is available: The Company has completed product research and development and spent $1,500,000 on market research in 2014. The production manager estimated that it will cost approximately $12,000,000 to purchase necessary production equipment. The equipment would fall into class 43 and have a CCA rate of 30%. The equipment would be eligible for an Investment Tax Credit of 10% of the net cost of the new production equipment to the company, A major upgrade of $2,000,000 would be required at the end of year 4. The equipment has a useful life of 8 years and is expected to have no salvage value at the end of its useful life. Additional information on future revenue and production and operating costs are as follows: According to market research, additional revenue is expected to be $5,000,000 per year. Additional production and operating expenses, which include $800,000 annual depreciation expense and S200,000 annual interest expense on loans to finance the purchase of the equipment, are expected to amount to $3,000,000 per year. Working capital is increased by S1.200,000 immediately due to purchase of materials for production. The Company will recover this amount by the end of year 8 The Company's cost of capital is 12". and the tax rate is 35. Required Net Present Value analysis orcillow analysis to determine whether/eta Technologies Intel pred with the pret Show all calculations to support our conclusion. The The equipment would fall into class 43 and have a CCA rate of 30%. The equipment would be eligible for an Investment Tax Credit of 10% of the net cost of the new production equipment to the company. A major upgrade of $2,000,000 would be required at the end of year 4. The equipment has a useful life of 8 years and is expected to have no salvage value at the end of its useful life. Additional information on future revenue and production and operating costs are as follows: According to market research, additional revenue is expected to be $5,000,000 per year. Additional production and operating expenses, which include $800,000 annual depreciation expense and $200,000 annual interest expense on loans to finance the purchase of the equipment, are expected to amount to $3,000,000 per year. Working capital is increased by $1.200,000 immediately due to purchase of materials for production. The Company will recover this amount by the end of year 8. The Company's cost of capital is 12% and the tax rate is 35%. Required: Use Net Present Value analysis or Cash Flow analysis to determine whether Zeta Technologies Ine. should proceed with the project. Show all calculations to support your conclusion. The following page is provided for your
