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An olive oil factory requires a fixed capital investment of $3,000,000 and a working capital of...

An olive oil factory requires a fixed capital investment of $3,000,000 and a working capital of $250,000. The average annual cost of production is $1,200,000 whereas the average annual income from sales is $2,000,000. The tax rate on profits is known to be 15% and the rate of interest is 10%. The expected lifetime of the equipment is 15 years and the annual rate of depreciation is 6% of the initial value.

a) Calculate the rate of return on investment. Comment on the investment’s feasibility.

b) Calculate the payout period by neglecting the time value of money. Comment on the investment’s feasibility.

c) Calculate the payout period by considering the time value of money. Comment on the investment’s feasibility.

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ekkarill92 answered 1 year ago
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