Question

1. Kingston Kiteboards Incorporated (KKI) has been experiencing very strong demand for its products as kite- boarding continues to take away market share from windsurfing. The company is considering a new facility to manufacture an improved line of kites and another facility to produce a new line of boards. The company estimates that the new kite facility will cost $1,250,000 to construct in Year 0 with a salvage value of $150,000 in Year 12. The board manufacturing facility will cost $1,500,000 in Year 0 with a salvage value of $200,000 in Year 12. Combined annual revenue for the new kites and boards is expected to be $800,000 with annual combined operating costs of $300,000 each year. Management has identified a piece of land where both facilities could be built that could be purchased for $500,000 in Year 0. The management team estimates that the land may be sold for the same value of $500,000 at the end of Year 12. The company uses a discount rate of 10% and a tax rate of only 15%. Assume that the CCA rate of 20% can be applied to the land and the manufacturing facilities. Use the present value tax shield approach to determine the net present value (NPV) of combined project involving both new manufacturing facilities.

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Given data : -> New Kite facility cost $1250,000 - a Salvag evalue in eost 2 - $ 150,000 - Manufacturing facility cost = $ 15,00,000 -- Selvage value in yearla $ 209,000 -) Combined annual revenue for the new Kites ound boards is expected to be $ 8,00,000 - annual combined operating cost - $3,00,000 -) Purchased Land sold value at the end of yeasuja = $5,00,000 - $509,000 - - discount suate = 101 - tasrate = 15% - CCA rate - 204

working Noteja Newkite CoA @ 207 = New Kite facility costy 201. 1st year = 2,5 0,000 x 22 = 2,50,000 2nd year = 1st, ear C GA value x remain teau CGA value X ruemaining cost percentage 2,59,000 x 30 2,00,000 3rd year = 2nd year cc A value x 80l. = 2,09 000x80 = 160,000 sve mavining calculation are caltulate to the above Process After tar cost :- Newkite ECA @ 201

revenue - After taux cost year !!- 5,00,000 - 5,52500 In 52,500 2002;. S,00,000 -4,42,000 58,000 Discount date @ 10%. tin CJ) CHO 10) te :0.909 yearoz Cito.10² Amounts are in $ = coush flow x Discount rate 1 - 52,000+ 0.900 = 47,727 27 58,000 X 0.826 347933

a computation of Net Dyesent Value Teato revenue Nowkite Boarding/ Lound After tax caush Discount Discounted CCA @ 207 CCA @ 20. CCA @ 207. Cest flow rate @ for cash flow 500,000 C250,000] C3,00,000 C1,00,000](5,52,500 (53,500) 0.909 C43727.27) 2 500,000 (200,000) C2,49,000) (80,000) C4,42,000) 58.000 0.826 47933-88 5,00, 0001C160,000 (1,92,000) C6 4,000) 13,53,600) C26400 0.75) 209.992.49 5,00.000 (1,28,000)|453,600) (5),200) (2,82,880) 3,17,120 0.683 1,48,395388 5 5,00.000 C1,02,400)|(1,22,880) C40,960) (2,26,304) 2,736960-620 169943-68 5,00,000C81.920) (98,304) 632,768) on C1,81043) 13, 18,9570-564 1.8004280 5,00,000 (65536) 678,643 2026,214) C1,44,835) 3,55165 350/3,55165 10.572 0.513 1182,256.03 .8 15,00,000|(52429) | (62,915) |(20,972) C115,868) | 3, 84, 132/0.466 /679, 200.58 9 5,69000C41943) C50, 3323 C16,777) (48,694) 4,07,306 0.424 173737.454 10 5,00,000 (33,554) C40,265) | 213,422) (74,155) 4,25,8450-385 164,181.57 115,00,000 626,844032,212) 40,737 (593243440,676 0.350 1,54,457:17 12 15,00,000 (21,475 (2 1475 168,500 [uzu50714,52,54 il 0.318 144, 193.39 total 159000 200,000 5,00,000 NA 450,000 2,79836.20 it 00100