Question

In: Economics

A company is considering constructing a plant to manufacture a proposed new product. The land costs...

A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000 the building costs $600,000 the equipment costs $250,000 and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other items are estimated to total $475,000. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should invest in the new product line. Use the PW method

Solutions

Expert Solution


FORMULA USED:

Please like the solution. Thank you.


Related Solutions

A company is considering constructing a plant to manufacture a proposed new product. The land costs...
A company is considering constructing a plant to manufacture a proposed new product. The land costs $350,000​, the building costs $500,000​, the equipment costs $250,000​, and $80,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 8 ​years, at which time the land can be sold for $350,000​, the building for $350,000​, and the equipment for $40,000.All of the working capital would be recovered at the EOY 8.The annual...
A company is in the process of constructing a new plant at a cost of $16...
A company is in the process of constructing a new plant at a cost of $16 million. It expects the project to generate cash flows of $9 million, $6 million, and $11 million over the next three years. The cost of capital is 18.9 percent p.a. What is the net present value of this project? (in millions to three decimals)
A company is considering constructing a new factory and is considering funding it by issuing a...
A company is considering constructing a new factory and is considering funding it by issuing a corporate bond to the value of $9m. The bond would have a term to maturity of 12 years, a coupon rate of 3.0% and the bond would be sold into the market at expected yield of 2.8%. Show how an immunisation portfolio could be constructed from the bonds below if the CB cut interest rates by 0.50% over the next year. Show how this...
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $ 100 million upfront. Once? built, it will generate cash flows of $ 16 million at the end of every year over the life of the plant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that...
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $100 million upfront. Once built, it will generate cash flows of $15 million at the end of every year over the life of the plant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that point you...
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $120 million upfront. Starting in t=1, it will generate cash flows of $19 million at the end of every year over the life of the plant. The plant will be useless 20 years later, once the mine runs out of ore. In t=21 you expect to...
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $ 96 million upfront. Once​ built, it will generate cash flows of $ 16 million at the end of every year over the life of the plant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that...
QUESTION 1 Geko PLC is considering the manufacture of a new product. The company has existing...
QUESTION 1 Geko PLC is considering the manufacture of a new product. The company has existing buildings that could be sold to buyers for R 120,000. The balance sheet records the building as having a value of R 60,000. The new product, which has a life of 5 years, will require installation of sophisticated machinery. This will cost R 200,000.   At the end of its life, the machine can be sold for R 10,000. Depreciation should be charged on the...
QUESTION 1 Geko PLC is considering the manufacture of a new product. The company has existing...
QUESTION 1 Geko PLC is considering the manufacture of a new product. The company has existing buildings that could be sold to buyers for R 120,000. The balance sheet records the building as having a value of R 60,000. The new product, which has a life of 5 years, will require installation of sophisticated machinery. This will cost R 200,000.   At the end of its life, the machine can be sold for R 10,000. Depreciation should be charged on the...
Sugar Land Company is considering adding a new line to its product mix, and the capital...
Sugar Land Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by a MBA student. The production line would be set up in unused space (Market Value Zero) in Sugar Land’ main plant. Total cost of the machine is $240,000. The machinery has an economic life of 4 years, and MACRS will be used for depreciation. The machine will have a salvage value of $25,000 after 4 years. MACRS calculated...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT