company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building 00,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will re ales 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 equipme 0,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other iten stimated to total 475,000.00. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should inv he new product line. Evaluate using all methods. .) Rate of Return Please answer in this format. Given: Formula (Please use this formula): net annual profit Rate of return = capita invested 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: .) Annual Worth Method Please answer in this format. Given: Formula (Please use this formula): MARR stands for Minimum Attractive Rate of Return In this method, the minimum required profit (MRP) is included as a cost or expenses. This computed as: MRP = Initiallnvest x MARR Then excess is computed as: Excess = Income - Expenses 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:
company is considering constructing a plant to manufacture a proposed new product. The land costs 300,000.00, the building 00,000.00, the equipment costs 250,000.00 and 100,000.00 additional working capital is required. It is expected that the product will re ales 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 equipme 0,000.00. All of the working capital would be recovered at the end of year 10. The annual expenses for labor, materials, and all other iten stimated to total 475,000.00. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should inv he new product line. Evaluate using all methods. .) Rate of Return Please answer in this format. Given: Formula (Please use this formula): net annual profit Rate of return = capita invested 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: .) Annual Worth Method Please answer in this format. Given: Formula (Please use this formula): MARR stands for Minimum Attractive Rate of Return In this method, the minimum required profit (MRP) is included as a cost or expenses. This computed as: MRP = Initiallnvest x MARR Then excess is computed as: Excess = Income - Expenses 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:
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...
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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.) Rate of Return
Please answer in this format.
Given:
Formula (Please use this formula):
net annual profit
Rate of return
capita invested
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:
b.) Annual Worth Method
Please answer in this format.
Given:
Formula (Please use this formula): MARR stands for Minimum Attractive Rate of Return
In this method, the minimum required profit (MRP) is included as a cost or expenses. This
computed as:
MRP = Initiallnvest x MARR
Then excess is computed as:
Excess 3D Incоте - Еxpenses
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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