A company is considering constructing a plant tomanufacture a proposed new product. The land costs$300,000, the building costs $600,000, theequipment costs $250,000, and $100,000 additionalworking capital is required. It is expected that theproduct will result in sales of $750,000 per year for 10years, at which time the land can be sold for$400,000, the building for $350,000, the equipmentfor $50,000, and the working capital of $100,000 willbe recovered. The company is expecting to sell10,000 units of the product every year. The annualexpenses for labor, materials, and all other items areestimated to total $475,000. If the company requiresa MARR of 8% per year, determine the profit/unit ofthe new product.

in this we have to calculate net present value of product.

00,000, the building costs $600,000, the uipment costs $250,000, and $100,000 additiona rking capital is required. It is expected that the duct will result in sales of $750,000 per year for 1 ars, at which time the land can be sold for 00,000, the building for $350,000, the equipmen $50,000, and the working capital of $100,000 w recovered. The company is expecting to sell 000 units of the product every year. The annual benses for labor, materials, and all other items are imated to total $475,000. If the company requires MARR of 8% per year, determine the profit/unit of - new product.

00,000, the building costs $600,000, the uipment costs $250,000, and $100,000 additiona rking capital is required. It is expected that the duct will result in sales of $750,000 per year for 1 ars, at which time the land can be sold for 00,000, the building for $350,000, the equipmen $50,000, and the working capital of $100,000 w recovered. The company is expecting to sell 000 units of the product every year. The annual benses for labor, materials, and all other items are imated to total $475,000. If the company requires MARR of 8% per year, determine the profit/unit of - new product.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
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