Upon the recent completion of a $2.5 mln market study, Martock Corp. is considering entering a new product market. Management estimate that the new project will require the purchase of new production machinery which costs $12.5 mln to purchase and $0.65 mln in delivery and calibration costs. Management estimate that the machinery will last for 8 years and that the firm will then be able to salvage it for its undepreciated cost of capital. The CCA rate associated with the new machinery is 12.5%. It is estimated that the new product will generate direct cash inflows of $3.75 mln per year over the 8-year life of the product. However, it is also estimated that the new product will cannibalize 15% of the cash inflows associated with the firms existing products, which are currently $1.05 mln per year. To prepare for the launch of the new product, the firm will need to increase inventory levels by $1.5 mln. a. Complete a CCA table (similar to the one below) for MCs purchase of the new machinery. From the table, determine the PVCCA.

b. Determine the PVCCA for MCs capital purchase using the PVCCA formula. How does your answer compare with that found in Part a.?

c. Determine the PVFCF associated with the project.

d. What is the NPV associated with the product expansion?

UCCBeginning CCA UCCEnd Tax Shield PVTaxshield Year 1 Etc. UCCBeginning CCA UCCEnd Tax Shield PVTaxshield Year 1 Etc