Why should it proceed with the new business

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Question: Hamilton is looking to expand its business. The new business is expected to generate $2M per year in sales over the next 5 years. Annual costs are expected to increases by $1.7M. An investment in net operating working capital of $50,000 needs to be made initially. Assuming that working capital is recovered at the end of the project and that this recovery does not affect tax payable. The machinery (CCA rate 30% ) will cost $600,000. Hamilton Steelworks expects to sell the machinery at the end of the project for $60, 000. The company would set up operations in a building it does not use but does rent out for $80,000 per year. If the cost of capital for Hamilton Steelworks is 10% and its tax rate is 30% should it proceed with the new business? Why or why not?

Reference no: EM133369114

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