A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building cost $600,000, the equipment costs $250,000 and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000 and all of the working capital would be recovered at EOY10. The annual expenses for labor, materials and all other items are estimated to total $500,000 and will decrease by $20,000 per year until year 10. If the company requires a MARR of 12% per year on projects of comparable risk, determine if it should invest in the new product line.
A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building cost $600,000, the equipment costs $250,000 and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000 and all of the working capital would be recovered at EOY10. The annual expenses for labor, materials and all other items are estimated to total $500,000 and will decrease by $20,000 per year until year 10. If the company requires a MARR of 12% per year on projects of comparable risk, determine if it should invest in the new product line.
a) Use
b) Determine the simple and payback period
Please provide complete solution, correct cash flow diagram, and conclusion
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