A company is considering constructing a plant to manufacture a proposed new product. The land costs $295,000, the building costs $590,000, the equipment costs $250,000, and $98,000 additional working capital is required. It is expected that the product will result in sales of $735,000 per year for 10 years, at which time the land can be sold for $386,000, the building for $348,000, and the equipment for $42,000. All of the working capital would be recovered at the EOY 10. The annual expenses for labor, materials, and all other items are estimated to total $458,000. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should invest in the new product line. Use the AW method.
A company is considering constructing a plant to manufacture a proposed new product.
The land costs $295,000, the building costs $590,000, the equipment costs $250,000, and
$98,000 additional working capital is required. It is expected that the product will result in
sales of $735,000 per year for 10 years, at which time the land can be sold for $386,000, the
building for $348,000, and the equipment for $42,000. All of the working capital would be
recovered at the EOY 10. The annual expenses for labor, materials, and all other items are
estimated to total $458,000.
If the company requires a MARR of 15% per year on projects of comparable risk,
determine if it should invest in the new product line. Use the AW method.
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