Shaftel Ready Mix is a processor and supplier of concrete, aggregate, and rock products. The company operates in the intermountain western United States. Currently, Shaftel has 14 cement-processing plants and a labor force of more than 375 employees. With the exception of cement powder, all materials (e.g., aggregates and sand) are produced internally by the company. The demand for concrete and aggregates has been growing steadily nationally. In the West, the growth rate has been above the national average. Because of this growth, Shaftel has more than tripled its gross revenues over the past 10 years.
Of the intermountain states, Arizona has been experiencing the most growth. Processing plants have been added over the past several years, and the company is considering the addition of yet another plant to be located in Scottsdale. A major advantage of another plant in Arizona is the ability to operate year round, a feature not found in states such as Utah and Wyoming.
In setting up the new plant, land would have to be purchased and a small building constructed. Equipment and furniture would not need to be purchased. These items would be transferred from a plant that opened in Wyoming during the oil boom period and closed a few years after the end of that boom. However, the equipment needs some repair and modifications before it can be used. The equipment has a book value of $200,000, and the furniture has a book value of $30,000. Neither has any outside market value. Other costs, such as the installation of a silo, well, electrical hookups, and so on, will be incurred. No salvage value is expected. The summary of the initial investment costs by category is as follows:
Estimates concerning the operation of the Scottsdale plant follow:
After reviewing these data, Karl Flemming, vice president of operations, argued against the proposed plant. Karl was concerned because the plant would earn significantly less than the normal 8.3% return on sales. All other plants in the company were earning between 7.5 and 8.5% on sales. Karl also noted that it would take more than 5 years to recover the total initial outlay of $582,000. In the past, the company had always insisted that payback be no more than 4 years. The company’s cost of capital is 10%. Assume that there are no income taxes.
Required:
Accounting Information Systems
Financial Accounting
Financial And Managerial Accounting
Corporate Financial Accounting
College Accounting, Chapters 1-27
Financial & Managerial Accounting
Intermediate Accounting: Reporting And Analysis
Brief Principles of Macroeconomics (MindTap Course List)
MKTG 12:STUDENT ED.-TEXT
Foundations of Business (MindTap Course List)
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Contemporary Marketing
Principles of Macroeconomics (MindTap Course List)
Accounting Information Systems
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Essentials of Economics (MindTap Course List)
Management, Loose-Leaf Version
Principles of Microeconomics (MindTap Course List)
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Fundamentals of Financial Management (MindTap Course List)
Principles of Economics (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Financial Accounting
College Accounting (Book Only): A Career Approach
Financial & Managerial Accounting
College Accounting (Book Only): A Career Approach
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Accounting (Text Only)
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
Statistics for Business & Economics, Revised (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Exploring Economics
Pkg Acc Infor Systems MS VISIO CD
Corporate Financial Accounting
Survey of Accounting (Accounting I)
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Practical Management Science
Purchasing and Supply Chain Management
Economics (MindTap Course List)
Economics For Today
Macroeconomics
Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Financial Accounting
Managerial Accounting
MACROECONOMICS FOR TODAY
Principles of Microeconomics
Micro Economics For Today
Understanding Management (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)