Question
In: Economics
The Ashton Group is developing a new product line. Initial costs for the line are $94693....
The Ashton Group is developing a new product line. Initial costs for the line are $94693. Annual utilities will be $34518. The company plans to concentrate on marketing for the first 2 years at a cost of $11430 per year. Profits are anticipated to be zero for the first few years. It is estimated the product line will finally have a profit of $469315 at the end of year 6 and profits will continue to increase by 20% each subsequent year. The new product line will require 7 employees for the first 8 years. The company will then hire 5 additional employees for the remainder of the product line lifespan. Employees are paid an average of $59104 per year. Using a lifespan of 17 years and a nominal annual interest rate of 4% compounded annually, what is the equivalent uniform annual worth of the new product line?
Solutions
Expert Solution
Investment = 94693
Annual utilities = 34518
marketing cost for 2 year = 11430
Profit from 6th yr =469315 increasing at 20% per year
Cost of each employee = 59104
I =4% = 0.04
t = 17 yrs
We need to find net present value and then using factor (A/P, 4%,17yrs) convert it to annual series
using excel
| Year | Invesetment | Employee payment | Utilities | Profit | Marketing costs | Net Cash Flow | Discount | Present value |
| 0 | -94,693.00 | -94,693.00 | 1.000000 | -94,693.00 | ||||
| 1 | -4,13,728.00 | -34,518.00 | -11,430.00 | -4,59,676.00 | 0.961538 | -4,41,996.15 | ||
| 2 | -4,13,728.00 | -34,518.00 | -11,430.00 | -4,59,676.00 | 0.924556 | -4,24,996.30 | ||
| 3 | -4,13,728.00 | -34,518.00 | -4,48,246.00 | 0.888996 | -3,98,489.06 | |||
| 4 | -4,13,728.00 | -34,518.00 | -4,48,246.00 | 0.854804 | -3,83,162.56 | |||
| 5 | -4,13,728.00 | -34,518.00 | -4,48,246.00 | 0.821927 | -3,68,425.54 | |||
| 6 | -4,13,728.00 | -34,518.00 | 4,69,315.00 | 21,069.00 | 0.790315 | 16,651.14 | ||
| 7 | -4,13,728.00 | -34,518.00 | 5,63,178.00 | 1,14,932.00 | 0.759918 | 87,338.87 | ||
| 8 | -4,13,728.00 | -34,518.00 | 6,75,813.60 | 2,27,567.60 | 0.730690 | 1,66,281.42 | ||
| 9 | -7,09,248.00 | -34,518.00 | 8,10,976.32 | 67,210.32 | 0.702587 | 47,221.08 | ||
| 10 | -7,09,248.00 | -34,518.00 | 9,73,171.58 | 2,29,405.58 | 0.675564 | 1,54,978.19 | ||
| 11 | -7,09,248.00 | -34,518.00 | 11,67,805.90 | 4,24,039.90 | 0.649581 | 2,75,448.23 | ||
| 12 | -7,09,248.00 | -34,518.00 | 14,01,367.08 | 6,57,601.08 | 0.624597 | 4,10,735.69 | ||
| 13 | -7,09,248.00 | -34,518.00 | 16,81,640.50 | 9,37,874.50 | 0.600574 | 5,63,263.12 | ||
| 14 | -7,09,248.00 | -34,518.00 | 20,17,968.60 | 12,74,202.60 | 0.577475 | 7,35,820.25 | ||
| 15 | -7,09,248.00 | -34,518.00 | 24,21,562.32 | 16,77,796.32 | 0.555265 | 9,31,620.74 | ||
| 16 | -7,09,248.00 | -34,518.00 | 29,05,874.78 | 21,62,108.78 | 0.533908 | 11,54,367.55 | ||
| 17 | -7,09,248.00 | -34,518.00 | 34,87,049.73 | 27,43,283.73 | 0.513373 | 14,08,328.48 | ||
| Net Present value | 38,40,292.15 | |||||||
Now for annual worth = Present worth * (A/P,4%,17yrs)
= 3840292.15 * 0.0821985
= 315666.34
Showing formula in excel
| Year | Invesetment | Employee payment | Utilities | Profit | Marketing costs | Net Cash Flow | Discount | Present value |
| 0 | -94693 | =B3+C3+D3+E3+F3 | =1/(1+0.04)^A3 | =G3*H3 | ||||
| 1 | =7*-59104 | -34518 | -11430 | =B4+C4+D4+E4+F4 | =1/(1+0.04)^A4 | =G4*H4 | ||
| 2 | =7*-59104 | -34518 | -11430 | =B5+C5+D5+E5+F5 | =1/(1+0.04)^A5 | =G5*H5 | ||
| 3 | =7*-59104 | -34518 | =B6+C6+D6+E6+F6 | =1/(1+0.04)^A6 | =G6*H6 | |||
| 4 | =7*-59104 | -34518 | =B7+C7+D7+E7+F7 | =1/(1+0.04)^A7 | =G7*H7 | |||
| 5 | =7*-59104 | -34518 | =B8+C8+D8+E8+F8 | =1/(1+0.04)^A8 | =G8*H8 | |||
| 6 | =7*-59104 | -34518 | 469315 | =B9+C9+D9+E9+F9 | =1/(1+0.04)^A9 | =G9*H9 | ||
| 7 | =7*-59104 | -34518 | =E9*(1+0.2) | =B10+C10+D10+E10+F10 | =1/(1+0.04)^A10 | =G10*H10 | ||
| 8 | =7*-59104 | -34518 | =E10*(1+0.2) | =B11+C11+D11+E11+F11 | =1/(1+0.04)^A11 | =G11*H11 | ||
| 9 | =(7+5)*-59104 | -34518 | =E11*(1+0.2) | =B12+C12+D12+E12+F12 | =1/(1+0.04)^A12 | =G12*H12 | ||
| 10 | =(7+5)*-59104 | -34518 | =E12*(1+0.2) | =B13+C13+D13+E13+F13 | =1/(1+0.04)^A13 | =G13*H13 | ||
| 11 | =(7+5)*-59104 | -34518 | =E13*(1+0.2) | =B14+C14+D14+E14+F14 | =1/(1+0.04)^A14 | =G14*H14 | ||
| 12 | =(7+5)*-59104 | -34518 | =E14*(1+0.2) | =B15+C15+D15+E15+F15 | =1/(1+0.04)^A15 | =G15*H15 | ||
| 13 | =(7+5)*-59104 | -34518 | =E15*(1+0.2) | =B16+C16+D16+E16+F16 | =1/(1+0.04)^A16 | =G16*H16 | ||
| 14 | =(7+5)*-59104 | -34518 | =E16*(1+0.2) | =B17+C17+D17+E17+F17 | =1/(1+0.04)^A17 | =G17*H17 | ||
| 15 | =(7+5)*-59104 | -34518 | =E17*(1+0.2) | =B18+C18+D18+E18+F18 | =1/(1+0.04)^A18 | =G18*H18 | ||
| 16 | =(7+5)*-59104 | -34518 | =E18*(1+0.2) | =B19+C19+D19+E19+F19 | =1/(1+0.04)^A19 | =G19*H19 | ||
| 17 | =(7+5)*-59104 | -34518 | =E19*(1+0.2) | =B20+C20+D20+E20+F20 | =1/(1+0.04)^A20 | =G20*H20 | ||
| Net Present value | =SUM(I3:I20) | |||||||
Rahul Sunny answered 2 years agoRelated Solutions
The Ashton Group is developing a new product line. Initial costs for the line are $83191....
The Ashton Group is developing a new product line. Initial costs
for the line are $83191. Annual utilities will be $29917. The
company plans to concentrate on marketing for the first 3 years at
a cost of $11746 per year.
Profits are anticipated to be zero for the first few years. It
is estimated the product line will finally have a profit of $453436
at the end of year 6 and profits will continue to increase by 18%
each subsequent...
The Ashton Group is developing a new product line. Initial costs for the line are $87985....
The Ashton Group is developing a new product line. Initial costs
for the line are $87985. Annual utilities will be $34193. The
company plans to concentrate on marketing for the first 4 years at
a cost of $13812 per year.
Profits are anticipated to be zero for the first few years. It
is estimated the product line will finally have a profit of $466925
at the end of year 5 and profits will continue to increase by 19%
each subsequent...
A company is developing a new product. The development of the product requires an initial investment...
A company is developing a new product. The development of the
product requires an initial investment of $160,000 with further
investments of $90,000 in year 1, $60,000 in year 2 and $10,000 in
year 3. The company will launch the product on the market in year 3
and the company expects annual profits of $60,000 from year 3 to
year 7. At the end of year 7, the company expects to terminate the
production line and sell it to a...
An engineering group needs to set up an assembly line to produce a new product. The...
An engineering group needs to set up an assembly line to produce
a new product. The following table describes the relationships
between the activities, their predecessors, and the estimated
activity times (in weeks) for this project. (10 points)
Activity
Immediate
Predecessors)
Optimistic
(Weeks)
Most Likely
(Weeks)
Pessimistic
(Weeks)
A
---
4
7
10
B
A
2
8
20
C
A
8
12
16
D
B
1
2
3
E
D, C
6
8
22
F
C
2
3
4
G...
London Yarn is developing a new line of women's causal dresses. Estimated overhead costs are $400,000...
London Yarn is developing a new line of women's causal dresses.
Estimated overhead costs are $400,000 while each dress will cost
$10 in labor and materials. They want to know if they should
continue with this project. Show all calculations.
(25 pts) If the price is set at $90, how many dresses do they
need to sell to breakeven?
(25 pts) If the price is set at $90, how many dresses do they
need to sell to earn a target...
Pak Foods Ltd. is considering a project of new product line that requires the initial cost...
Pak Foods Ltd. is considering a project of new product line that
requires the initial cost of Rs. 15 million. The company is
considering to raise the capital from debt and equity financing (no
preferred stock). The target capital structure is 60% equity and
40% debt. The interest rate on new debt is 8.00%, and the cost of
equity is 15.00%, and the tax rate is 40%. The project
has an economic life of 7 years and has the following...
Colorado Springs Technology must choose between two methods of producing a new product. The initial costs...
Colorado Springs Technology must choose between two methods of
producing a new product. The initial costs and year-end cash flow
are as follows:
Year
0
1
2
3
4
5
Method A
--$1,000,000
210,000
250,000
300,000
525,000
600,000
Method B
--$1,000,000
410,000
375,000
475,000
225,000
195,000
The company’s WACC is 10 percent. Calculate the NPV, IRR &
MIRR for each method.
Joe’s Technology must choose between two repeatable methods of producing a new product. The initial costs...
Joe’s Technology must choose between two repeatable
methods of producing a new product. The initial costs and year-end
cash benefits are as follows:
Year
0
1
2
3
4
5
Method
M
-$1,500,000
600,000
750,000
550,000
200,000
Method
N
-$2,500,000
1,200,000
950,000
700,000
400,000
300,000
Assume all cash flows occur at year-end and the
company’s required return is 6.57 percent.
Please compute the net present value ______________ and
the equivalent annuity ________________ for Method...
Joe’s Technology must choose between two repeatable methods of producing a new product. The initial costs...
Joe’s Technology must choose between two repeatable
methods of producing a new product. The initial costs and year-end
cash benefits are as follows:
Year
0
1
2
3
4
5
Method
M
-$1,500,000
600,000
750,000
550,000
200,000
Method
N
-$2,500,000
1,200,000
950,000
700,000
400,000
300,000
Assume all cash flows occur at year-end and the
company’s required return is 6.57 percent.
Please compute the net present value ______________ and
the equivalent annuity ________________ for Method...
Seong Hotels is interested in developing a new hotel is Seoul. The initial investment of the...
Seong Hotels is interested in developing a new hotel is Seoul.
The initial investment of the project is $20 million, but cashflows
could differ if the government imposes a hotel tax. There is a 60%
chance a hotel tax will be imposed and cash flows would be $2
million per year for 20 years. However, there is a 40% chance there
will not be a tax imposed so cash flows would be $4 million per
year for 20 years. They...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- What are the benefits of doing a pilot program before a full scale rollout of a...
- It is a calm summer day in southeast Iowa at the Ottumwa air traffic control radar...
- 1. Write a detailed article on Evolution of attacks on the internet & web [your article...
- Analyze the role of the contingency plan coordinator (CPC) in the scope of preparing a BIA....
- Amazing Manufacturing, Inc., has been considering the purchase of a new manufacturing facility for $500,000. The...
- LANGUAGE: JAVA Create a New Project called YourLastNameDomainName. Write a DomainName class that encapsulates the concept...
- On January 1, 2015 $20,000,000 of 20 year bonds were issued with a coupon rate of...
ADVERTISEMENT