A company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building costs 600,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will result in sales of P750,000 per year for 10 years, at which time the land can be sold for 400,000.00, the building for 350,000.00 and the equipment for 50,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other items are estimated to total 475,000.00. 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. Evaluate using all methods. a.) Present Worth Method Please answer in this format. Given: Formula used: Cash flow Sketch/ Diagram: Solution: b.) Future Worth Method Please answer in this format. Given: Formula used: Cash flow Sketch/ Diagram: Solution: c.) Payback Period Please answer in this format. Given: Formula (Please use this formula): Payout period (years) = investment – salvage value over net annual cash flow Note: If there is a required value before using the given formula, then solve for it to be able to use the given formula. Solution:
A company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building costs 600,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will result in sales of P750,000 per year for 10 years, at which time the land can be sold for 400,000.00, the building for 350,000.00 and the equipment for 50,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other items are estimated to total 475,000.00. 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. Evaluate using all methods. a.) Present Worth Method Please answer in this format. Given: Formula used: Cash flow Sketch/ Diagram: Solution: b.) Future Worth Method Please answer in this format. Given: Formula used: Cash flow Sketch/ Diagram: Solution: c.) Payback Period Please answer in this format. Given: Formula (Please use this formula): Payout period (years) = investment – salvage value over net annual cash flow Note: If there is a required value before using the given formula, then solve for it to be able to use the given formula. Solution:
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building costs
600,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will result in
sales of P750,000 per year for 10 years, at which time the land can be sold for 400,000.00, the building for 350,000.00 and the equipment for
50,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other items are
estimated to total 475,000.00. 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. Evaluate using all methods.
a.) Present Worth Method
Please answer in this format.
Given:
Formula used:
Cash flow Sketch/ Diagram:
Solution:
b.) Future Worth Method
Please answer in this format.
Given:
Formula used:
Cash flow Sketch/ Diagram:
Solution:
c.) Payback Period
Please answer in this format.
Given:
Formula (Please use this formula):
Payout period (years) = investment – salvage value over net annual cash flow
Note: If there is a required value before using the given formula, then solve for it to be able to use the given formula.
Solution:
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