A carpetmanufacturer inGeorgia plans to expand its plant for a capital investment of $500,000. The extra capacity will permit the company to produce 400,000 yards of carpet each year during the plant’s five-year life. Each yard of carpet will produce a revenue of $2.00, and the plant’s incremental operating expenses are expected to be $150,000 each year. Assume the expansion has no salvage value at the end of year five. If the manufacturer’s MARR is 18% per year, what is the minimum annual production rate to make the expansion a worthwhile investment? (a) 103,400 yards (b) 310,000 yards (c) 154,950 yards (d) 250,350 yards.
A carpetmanufacturer inGeorgia plans to expand its plant for a capital investment of $500,000. The extra capacity will permit the company to produce 400,000 yards of carpet each year during the plant’s five-year life. Each yard of carpet will produce a revenue of $2.00, and the plant’s incremental operating expenses are expected to be $150,000 each year. Assume the expansion has no salvage value at the end of year five. If the manufacturer’s MARR is 18% per year, what is the minimum annual production rate to make the expansion a worthwhile investment? (a) 103,400 yards (b) 310,000 yards (c) 154,950 yards (d) 250,350 yards.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
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A carpetmanufacturer inGeorgia plans to expand its plant for a capital investment of $500,000. The extra capacity will permit the company to produce 400,000 yards of carpet each year during the plant’s five-year life. Each yard of carpet will produce a revenue of $2.00, and the plant’s incremental operating expenses are expected to be $150,000 each year. Assume the expansion has no salvage value at the end of year five. If the manufacturer’s MARR is 18% per year, what is the minimum annual production rate to make the expansion a worthwhile investment? (a) 103,400 yards (b) 310,000 yards (c) 154,950 yards (d) 250,350 yards.
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