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Shrieves Casting Company is considering adding a new line to its product mix. The production line would be set up in unused space in Shrieves' main plant. The machinerys invoice price would be approximately $200,000; another $10,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and would be a class 8 with a 20% CCA rate. The machinery is expected to have a salvage value of $25,000 after 4 years of use. The new line would generate incremental sales of 1,150 units per year for four years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firms net operating working capital would have to increase by an amount of $32,000. The firms tax rate is 28%, and its overall weighted average cost of capital is 10 percent. INPUT DATA r = 10% T = 28% d = CCA rate = Machine Cost = 200,000 Shipping Cost = 10,000 Installation cost = 30,000 Change in NOWC = # Units = Price = Costs = Inflation = Salvage Value = Economic life = A. Initial Outlay (in 1000s) New Machine Cost 200.00 Plus: Setup & Training 40.00 Capital Cost 240.00 Change in NOWC - Initial Investment CF 240.00 B. Operating Cash Flows (in 1000s) Yrs 1 2 3 4 Intial Outlay # Units - - - - Price - - - - Costs - - - - NCF-BT - Tax - NCF-AT - PV of Operating CF's $0.000 C. Ending Cash Flows Salvage Value - NOWC Recovery - NCFs PV of Salv + NOWC $0.00 D. NPV of CCA Tax Shield C = Cost 240.00 S= Salv Value d= CCA rate= T = r= cost of capital = n= PV of CCATS= #DIV/0! NPV = Investment Outlay + PV Project CF + PV CCATS + PV Ending CF Investment Outlay $ (240.00) PV of Operating CF PV CCATS PV Ending CF NPV of project $ (240.00) PROJECT Decision: ACCEPT / REJECT

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