You have been working for the company Cov Inc. for 10 years now. which specializes in bacterial protection equipment. Seeing that there is currently a great Post covid-19 market opportunity, an idea has germinated and you would like to exploit it. Over the past 2 months, she has invested $ 20,000 in research and development and you are analyzing the market analysis data you ordered from a specialist firm. Cov inc. just received the invoice for $ 14,000 for the work done and she has 30 days to make the payment.

To carry out this 8-year project, it will have to purchase a new building with land. After several searches, you have found a factory near its main factory. Looking at the tax bill, we see that the land is valued at $ 625,000 and the building is valued at $ 430,000. After several negotiations, you consider that you would be able to buy it for $ 1,263,000.

Note that notary fees of $ 4,750 and transfer duties of $ 24,500 will also have to be paid to complete this transaction.

After 8 years, the building will have an estimated resale value of $ 220,000 and the land is expected to increase in value by 2% per year. At the end of the 8 years, the land will be sold at its market value.

In addition, it will have to invest in new equipment valued at $ 275,000, installation and basic training included. This equipment would have a useful life of 20 years. At the end of its useful life, the resale value will be $ 30,000. It is considered that this type of equipment always loses the same value every year.

After several discussions in committee, with the sales department, the marketing department and the consulting firm, it is clear that the quantity that we could sell of our product represents the most uncertain variable of this project. To this end, the committee established 5 values for this variable and revealed the following probability distribution:

Years 1 to 4 (end of year) Planned annual sales/ Likelihood

1: 11,000 u. /15%,

2: 14,000 u. /35%,

3: 19,000 u. /30%,

4: 22,000 u. /20%

Years 5 to 8 (end of year) Planned annual sales/ Likelihood

1: 19,000 u. 15%

2: 22,000 u. 30%

3: 26,000 u. 35%

4: 32,000 u. 15%

5: 35,000 u. 5%

Due to the increase in production, a working capital of $ 30,000 will have to be dedicated at the start of the project. The working capital will be recovered at the end of the project.

The committee determined that a unit marginal contribution (margin on unit variable cost) before tax of $ 22 could be expected. The pre-tax fixed operating costs, other than book depreciation, are expected to be $ 124,000 per year for the first four years and will increase to $ 243,000 per year for the remaining years of the project thereafter.

a) Calculate the acquisition cost and salvage value of the equipment, building and land. b) Calculate the tax adjustment on disposal of assets by giving the details of the calculations for each category with and without closure c) Calculate the after-tax NPV considering that: The capital cost allowance (CCA) rate that applies to equipment is 20% calculated on the undepreciated balance. The CCA rate that applies to the building is 4% calculated on the unamortized balance The business is subject to a marginal tax rate of 22.6% and its minimum acceptable rate of return (TRAM) is 8.5% after tax. At the disposal of assets at the end of the project, there will be no equipment of this category left in the company, however, there will be other buildings belonging to this same category in the company. Unless otherwise indicated, cash inflows and outflows will occur at the end of the period. d) You are finally asked to perform a sensitivity analysis on the marginal contribution by varying it by more than 10% (redo the table) e) Draw a conclusion for the project. Indicate the impact in% on the NPV.