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In: Accounting

Update Replace Initial investment in 2021 $ 115,000,000 $ 138,000,000 Terminal salvage value in 2025 $...

Update

Replace

Initial investment in 2021

$ 115,000,000

$ 138,000,000

Terminal salvage value in 2025

$ 10,000,000

$ -

Working capital investment required

$ -

$ 5,000,000

Useful life

5 years

5 years

Total annual cash operating costs per unit

$ 70,000

$ 60,000
ABC Manufacturing expects to sell 1,025 units of product in 2021 at an average price of $100,000 each based on current demand.
The Chief Marketing Officer forecasts growth of 50 units per year through 2025. So, the demand will be 1,025 units in 2021, 1,075 units
in 2022, etc. and the $100,000 price will remain consistent for all five years of the investment life. However, ABC cannot produce more
than 1,000 units annually based on current capacity. Calculate IRR for both options

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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