Question
In: Economics
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice activation). FX is looking to expand their operations to add a second product line capable of producing 1.3 Million units per year. The equipment investment cost for this new operation is $27 Million. The project falls under a 7 year MACRS class life and the company estimates that the salvage value will be $2.7 Million at the end of the 6 year project. The average selling price for each mirror is $85 per unit. The annual expected sales shown below:
|
Year |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|
Volume (000) |
600 |
750 |
1000 |
1200 |
1200 |
1200 |
The material cost for each mirror is $20 (with 25 % of the material imported from Canada and 35% from Mexico). The labor to produce each mirror is $15 with additional variable cost of manufacturing at $17 per unit. The fixed cost of manufacturing operations is $10 Million per year. FX maintains 1 month of raw materials and 1 month of WIP and finished goods combined to balance overall automotive demand. Assume that FX has a federal tax rate of 25% and a state tax rate of 5%. Also assume that FX uses a MARR of 15% for all economic analyses.
a) What is the NPV of the investment?
Solutions
Expert Solution
a) 27,093,405
| Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Sales Vol | 6,00,000 | 7,50,000 | 10,00,000 | 12,00,000 | 12,00,000 | 12,00,000 |
| Prod Vol | 6,50,000 | 8,12,500 | 10,83,333 | 13,00,000 | 13,00,000 | 13,00,000 |
| Sales Rev | 510,00,000 | 637,50,000 | 850,00,000 | 1020,00,000 | 1020,00,000 | 1020,00,000 |
| Material Cost | -120,00,000 | -150,00,000 | -200,00,000 | -240,00,000 | -240,00,000 | -240,00,000 |
| Labour Cost | -168,00,000 | -210,00,000 | -280,00,000 | -336,00,000 | -336,00,000 | -336,00,000 |
| Fixed Cost | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 |
| Income | 122,00,000 | 177,50,000 | 270,00,000 | 344,00,000 | 344,00,000 | 344,00,000 |
| Federal Tax | -42,70,000 | -62,12,500 | -94,50,000 | -120,40,000 | -120,40,000 | -120,40,000 |
| State Tax | -4,88,000 | -7,10,000 | -10,80,000 | -13,76,000 | -13,76,000 | -13,76,000 |
| Income post Tax | 74,42,000 | 108,27,500 | 164,70,000 | 209,84,000 | 209,84,000 | 209,84,000 |
| -270,00,000 | 27,00,000 | |||||
| -270,00,000 | 74,42,000 | 108,27,500 | 164,70,000 | 209,84,000 | 209,84,000 | 236,84,000 |
| 270,93,405 |
b) 23,802,550
| Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Sales Vol | 6,00,000 | 7,50,000 | 10,00,000 | 12,00,000 | 12,00,000 | 12,00,000 |
| Prod Vol | 6,50,000 | 8,12,500 | 10,83,333 | 13,00,000 | 13,00,000 | 13,00,000 |
| Sales Rev | 510,00,000 | 637,50,000 | 850,00,000 | 1020,00,000 | 1020,00,000 | 1020,00,000 |
| Material Cost | -120,00,000 | -150,00,000 | -200,00,000 | -240,00,000 | -240,00,000 | -240,00,000 |
| Labour Cost | -168,00,000 | -210,00,000 | -280,00,000 | -336,00,000 | -336,00,000 | -336,00,000 |
| Fixed Cost | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 |
| Income | 122,00,000 | 177,50,000 | 270,00,000 | 344,00,000 | 344,00,000 | 344,00,000 |
| Interest ($10MM at 10%) | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 |
| Federal Tax (35%) | -42,70,000 | -62,12,500 | -94,50,000 | -120,40,000 | -120,40,000 | -120,40,000 |
| State Tax (10%) | -4,88,000 | -7,10,000 | -10,80,000 | -13,76,000 | -13,76,000 | -13,76,000 |
| Income post Tax | 64,42,000 | 98,27,500 | 154,70,000 | 199,84,000 | 199,84,000 | 199,84,000 |
| -270,00,000 | 27,00,000 | |||||
| -270,00,000 | 64,42,000 | 98,27,500 | 154,70,000 | 199,84,000 | 199,84,000 | 226,84,000 |
| 238,02,550 |
c) Cost will increase by 2% while the Sales price remains the same
1,721,326
| Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Sales Vol | 6,00,000 | 7,50,000 | 10,00,000 | 12,00,000 | 12,00,000 | 12,00,000 | |
| Prod Vol | 6,50,000 | 8,12,500 | 10,83,333 | 13,00,000 | 13,00,000 | 13,00,000 | |
| Sales Rev | 510,00,000 | 637,50,000 | 850,00,000 | 1020,00,000 | 1020,00,000 | 1020,00,000 | |
| 1.2 | Material Cost | -144,00,000 | -180,00,000 | -240,00,000 | -288,00,000 | -288,00,000 | -288,00,000 |
| 1.2 | Labour Cost | -201,60,000 | -252,00,000 | -336,00,000 | -403,20,000 | -403,20,000 | -403,20,000 |
| 1.2 | Fixed Cost | -120,00,000 | -120,00,000 | -120,00,000 | -120,00,000 | -120,00,000 | -120,00,000 |
| Income | 44,40,000 | 85,50,000 | 154,00,000 | 208,80,000 | 208,80,000 | 208,80,000 | |
| Interest ($10MM at 10%) | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | |
| Federal Tax (35%) | -15,54,000 | -29,92,500 | -53,90,000 | -73,08,000 | -73,08,000 | -73,08,000 | |
| State Tax (10%) | -1,77,600 | -3,42,000 | -6,16,000 | -8,35,200 | -8,35,200 | -8,35,200 | |
| Income post Tax | 17,08,400 | 42,15,500 | 83,94,000 | 117,36,800 | 117,36,800 | 117,36,800 | |
| -270,00,000 | 27,00,000 | ||||||
| -270,00,000 | 17,08,400 | 42,15,500 | 83,94,000 | 117,36,800 | 117,36,800 | 144,36,800 | |
| 17,21,326 |
Rahul Sunny answered 1 year agoRelated Solutions
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FX, Inc. is a volume manufacturer of high technology automotive
mirrors (including cell link and voice activation). FX is looking
to expand its operations to add a second product. The equipment
investment cost for this new operation is $125,000. The project
falls under a 7-year MACRS class life and the company estimates
that the salvage value will be $50,000 at the end of the 5-year
project. The annual revenue for the new line is $100,000. The
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FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
FX, Inc. is a volume manufacturer of high technology automotive
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investment cost for this new operation is $125,000. The project
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