Question
Trevor Car was so impressed with your work on the bonds question that you were promoted after only 1 month with the company. You are
Trevor Car was so impressed with your work on the bonds question that you were promoted after only 1 month with the company. You are now Director of Finance and are tasked with evaluating business proposals for clients. Your base salary is $194,000 per year.
The following information was made available to you in order to evaluate a project for the companys new client.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
Forecasted Unit Sold | 35,000 | 85,000 | 95,000 | 156,000 | 225,000 | 199,000 |
Fixed Costs | 410,000 | 400,000 | 400,000 | 400,000 | 400,000 | 400,000 |
This project will run for six years and will require an initial investment of $16,000,000 for new equipment. At the end of the six years, this equipment can be sold for $2,000,000. The initial working capital required will be Inventory of 3,000,000, Accounts Receivable of $1,000,000 and Accounts Payable of $1,000,000.
You have contacted CRA and determined that the asset class for this equipment is Class 6 (see table below for CCA rates). You also confirm that the companys tax rate is 34%.
The company forecasts that they can sell their new products at a price of $225, and that the variable cost of each unit sold is $125.
The required rate of return for this project is 30%
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