You are considering investing in a glove manufacturing plant for which you need to immediately pay RM10 million. You expect to produce and sell 10,000 gloves per year. Production commences after 12 months, i.e, at the end of year 1 (which is also the begining of Year 2). You expect production cost to be RM50 per glove. Selling price is estimated at RM100 per glove for the first three years of sales. You are not sure about the sales price after Year 3 because your exclusive patent right expired then. The plant facilities last for 8 years. Cost of capital is 8%. Compute the glove's sales price after Year 3. and this project's NPV Don't you think the price after year 3 is the same as the marginal cost, since at optimum level of output, marginal revenue=marginal cost?

You are considering investing in a glove manufacturing plant for which you need to immediately pay RM10 million. You expect to produce and sell 10,000 gloves per year. Production commences after 12 months, i.e, at the end of year 1 (which is also the begining of Year 2). You expect production cost to be RM50 per glove. Selling price is estimated at RM100 per glove for the first three years of sales. You are not sure about the sales price after Year 3 because your exclusive patent right expired then. The plant facilities last for 8 years. Cost of capital is 8%. Compute the glove's sales price after Year 3. and this project's NPV Don't you think the price after year 3 is the same as the marginal cost, since at optimum level of output, marginal revenue=marginal cost?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PA: Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated...

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