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# Klaatu Co. has recently completed a \$300,000, two-year marketing study. Based on the results.

Klaatu Co. has recently completed a \$300,000, two-year marketing study. Based on the results. Klaatu has estimated that 10,000 of its new RUR-class robots could be sold annually over the next eight years at a price of \$10,115 each. Variable costs per robot are \$7,900; fixed costs total \$11.7 million per year. Starts up costs include \$41 million to build production facilities, and 9 million in net working capital. The \$41 million facility is made up of a building valued at 6 million that will belong to CCA class 3 (rate is 5%) and \$35 million of manufacturing equipment (belonging to CCA class 8 with rate of 20%). At the end of the project`s life, the facilities will be sold for an estimated \$10.1 million, assuming the building`s value will be \$4 million and net working capital will be recovered .When this project is over, there will still be other assets in the CCA class. Klaatu pays taxes at a 37% and uses a 15.5 percent discount rate on projects such as this one. Should Klaatu produce the RUR-class robots?

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SOLUTION:
Calculation of Net Cash Flows:
Particulars 0 Initial Investment
Introduction of working capital 1 2 3 4 5 6 7 8 \$(41,000,000.00)
\$(9,000,000.00) Sales Revenue
Less: Variable Costs
Less:...

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