A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the working capital would be recovered at the EOY 10. The annual expenses for labor, materials, and all other items are estimated to total $475,000. 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. Use the AW method.
A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the working capital would be recovered at the EOY 10. The annual expenses for labor, materials, and all other items are estimated to total $475,000. 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. Use the AW method.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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2.)
![A company is considering constructing a plant to manufacture a proposed new
product. The land costs $300,000, the building costs $600,000, the equipment costs
$250,000, and $100,000 additional working capital is required. It is expected that the
product will result in sales of $750,000 per year for 10 years, at which time the land can
be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the
working capital would be recovered at the EOY 10. The annual expenses for labor,
materials, and all other items are estimated to total $475,000. 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. Use the AW method.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6967809e-7a9d-47ec-9c0d-a9511f5ec028%2F49108d56-cc31-468e-af87-745cf8fe69ac%2Fpoy3xxjk_processed.png&w=3840&q=75)
Transcribed Image Text:A company is considering constructing a plant to manufacture a proposed new
product. The land costs $300,000, the building costs $600,000, the equipment costs
$250,000, and $100,000 additional working capital is required. It is expected that the
product will result in sales of $750,000 per year for 10 years, at which time the land can
be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the
working capital would be recovered at the EOY 10. The annual expenses for labor,
materials, and all other items are estimated to total $475,000. 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. Use the AW method.
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