Question
The Ventilation Division will manufacture the IAFS using idle facilities. This plant can produce up to 200 units per year over the products 10-year life.
The Ventilation Division will manufacture the IAFS using idle facilities. This plant can produce up to 200 units per year over the products 10-year life.
Incremental net working capital of CAD 550,000 is also needed which will be liquidated at the end of the products life.
It's sales are estimated to be 75 units in the first year and will grow by 25.0% a year until plant capacity is reached. The unit price is CAD 125,000 and unit costs are CAD 103,500 per unit, which includes direct materials, direct labour, and manufacturing overhead. The Ventilation Division must also pay a CAD 10,000 licensing fee per unit for the vacuum cleaner technology. Incremental selling and administration costs will be CAD 360,000 per year.
Find the operating incremental cash flows.
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