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Cost Cutting: CBD Inc, a processor of CBD oils, is analyzing a potential opportunity to cut costs. It can spend $1.5 Million today on the purchase and installation of a new automated processing line. The equipment will have a six-year life, at which time it can be sold for $250,000. The equipment qualifies as a Class 8 asset with a 20% CCA rate. Since the equipment will be purchased in 2020, it is subject to the Accelerated Investment Incentive rules, rather than the half-year rule. The benefit of installing the new equipment is a reduction in labor costs of $400,000 per year. The new process will lead to an immediate increase in Net Working Capital (NWC) of $25,000, which will be recovered at the conclusion of the project. The firm has a 30% corporate tax rate and it wants a 15% return. Should they undertake this cost-cutting program?

What is the correct value for Step #1-#6? ?(Value for each Step) Should they accept or reject? Is the NPV positive or negative?

Multiple Choice

MC	Step 1	Step 2	Step 3	Step 4	Step 5	Step 6
A	$1,500,000	$1,366,245	$376,650	$123,690	$16,412	-$15,648
B	$1,525,000	$1,059,655	$452,640	$98,654	$17,397	$17,369
C	$250,000	$1,263,755	$650,545	$108,082	$20,635	-$14,192
D	$400,000	$1,135,950	$273,913	$85,631	$18,528	-$18,354

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