The Tuxedo Corporation have also asked that your team evaluate two production alternatives submitted by the production department for the new Tuxedo Electric vehicles. The proposed capital project calls for developing that plant for producing the Tuxedo Electric Vehicles. Two alternatives plant models are proposed.Alternative A is a Semi-automated system that has initial equipment and software development costs projected at $194,000,000. Alternative B is a fully automated system that is estimated with an initial equipment and software cost estimated to be $336,000,000. For each alternative, the initial equipment and software costs would be capitalized and qualify for a capital cost allowance (CCA) rate of 30 percent. You will use the cost of capital obtained through the pure play approach for evaluating the two alternatives. As an environmental friendly product, the Tuxedo Corporation pay corporate tax at the rate of 35 percent for investments in its EV manufacturing project.

The market research conducted by a marketing consultant indicated three possible economic condition for the next five years. The market research indicated that the economy can be normal, booming or there can be a recession. The consultants provided the probability of each state of the economy. They also estimated sales for next year and the expected increase in sales for the subsequent years under each possible economic condition. The expected sales data provided by the market research consultant for the Tuxedo Electric Vehicle is presented in the table below:

Table 4 Per Unit Production Cost for the Tuxedo Electric Vehicle - Semi-Automatic and Fully-Automatic Production System Alternative A Alternative B Semi-Automatic Fully-Automatic Year System System 2,021 $28,000 $22,000 2,022 29,400 23,100 2,023 30,870 24,255 2,024 32,414 25,468 2,025 34,034 26,741