The management of VGA Textile Company is considering of constructing a plant to manufacture a proposed new product. The land costs 15 million pesos, the building costs 30 million pesos, the equipment costs 12.5 million pesos, and 5 million working capital is required. At the end of 12 years, the land can be sold for 25 million, building for 12 million, equipment for 250,000 pesos, and all of the working capital recovered. The total annual expenses are estimated to cost 23,750,000. If the company requires a minimum return of 25% and the annual sales is 39,748,560, determine if the investment is desirable using the annual worth method.
The management of VGA Textile Company is considering of constructing a plant to manufacture a proposed new product. The land costs 15 million pesos, the building costs 30 million pesos, the equipment costs 12.5 million pesos, and 5 million working capital is required. At the end of 12 years, the land can be sold for 25 million, building for 12 million, equipment for 250,000 pesos, and all of the working capital recovered. The total annual expenses are estimated to cost 23,750,000. If the company requires a minimum return of 25% and the annual sales is 39,748,560, determine if the investment is desirable using the annual worth method.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 12P
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The management of VGA Textile Company is considering of constructing a plant to manufacture a proposed new product. The land costs 15 million pesos, the building costs 30 million pesos, the equipment costs 12.5 million pesos, and 5 million working capital is required. At the end of 12 years, the land can be sold for 25 million, building for 12 million, equipment for 250,000 pesos, and all of the working capital recovered. The total annual expenses are estimated to cost 23,750,000. If the company requires a minimum return of 25% and the annual sales is 39,748,560, determine if the investment is desirable using the annual worth method.
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