RET Inc. currently has two products, low and high priced stoves. REX Inc. has decided to sell a new line of medium- priced stoves. Sales revenues for the new line of stoves are estimated at $600 a year. Variable costs are 60% of sales. The project is expected to last 10 years. Also, non - variable costs are $200 per year. The company has spent $100 in research and a marketing study that determined the company will have synergy gains/sales of $200 a year from sales of its existing high-priced stoves. The production variable cost of these sales is $100 a year. The plant and equipment required for producing the new line of stoves costs $300 and will be depreciated down to zero over 30 years using straight-line depreciation. It is expected that the plant and equipment can be sold (salvage value) for $50 at the end of 10 years. The new stoves will also require today an increase in net working capital of $20 that will be returned at the end of the project. The tax rate is 20 percent and the cost of capital is 10%.
RET Inc. currently has two products, low and high priced stoves. REX Inc. has decided to sell a new line of medium- priced stoves. Sales revenues for the new line of stoves are estimated at $600 a year. Variable costs are 60% of sales. The project is expected to last 10 years. Also, non - variable costs are $200 per year. The company has spent $100 in research and a marketing study that determined the company will have synergy gains/sales of $200 a year from sales of its existing high-priced stoves. The production variable cost of these sales is $100 a year. The plant and equipment required for producing the new line of stoves costs $300 and will be depreciated down to zero over 30 years using straight-line depreciation. It is expected that the plant and equipment can be sold (salvage value) for $50 at the end of 10 years. The new stoves will also require today an increase in net working capital of $20 that will be returned at the end of the project. The tax rate is 20 percent and the cost of capital is 10%.
Essentials Of Business Analytics
1st Edition
ISBN:9781285187273
Author:Camm, Jeff.
Publisher:Camm, Jeff.
Chapter11: Monte Carlo Simulation
Section: Chapter Questions
Problem 3P
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