CH 5#9 The A Corporation is considering the construction of a new plant to build a component part that it is currently purchasing. It has the following information. Item Cost Expected life Plant $20,000,000 40 years Utilities 10,000,000 20 years Equipment 15,000,000 10 years The operating costs are estimated at $5 million per year, assuming an output of 1 million units of product per year. The corporation uses a discount rate of 0.05. It can purchase the product at a cost of $10 per unit. Should the new plant be built (on a straight economic basis)?
CH 5#9 The A Corporation is considering the construction of a new plant to build a component part that it is currently purchasing. It has the following information. Item Cost Expected life Plant $20,000,000 40 years Utilities 10,000,000 20 years Equipment 15,000,000 10 years The operating costs are estimated at $5 million per year, assuming an output of 1 million units of product per year. The corporation uses a discount rate of 0.05. It can purchase the product at a cost of $10 per unit. Should the new plant be built (on a straight economic basis)?
Chapter7: Deductions And Losses: Certain Business Expenses And Losses
Section: Chapter Questions
Problem 28CE
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CH 5#9 The A Corporation is considering the construction of a new plant to build a component part that it is currently purchasing. It has the following information.
| Item | Cost | Expected life |
| Plant | $20,000,000 | 40 years |
| Utilities | 10,000,000 | 20 years |
| Equipment | 15,000,000 | 10 years |
The operating costs are estimated at $5 million per year, assuming an output of 1 million units of product per year.
The corporation uses a discount rate of 0.05. It can purchase the product at a cost of $10 per unit.
Should the new plant be built (on a straight economic basis)?
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