A company is considering constructing a plant to manufacture a proposed new product. The land costs $250,000, the building costs $650,000, the equipment costs $300,000, and $80,000 additional working capital is required. It is expected that the product will result in sales of $700,000 per year for 11 years, at which time the land can be sold for $350,000, the building for $400,000, and the equipment for $50,000. All of the working capital would-be recovered at the EOY 11. The annual expenses for labor, materials, and all other items are estimated to total $500,000. If the company requires a MARR of 14% per year on projects of comparable risk, determine if it should invest in the new product line. Use the AW method. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 14% per year.
A company is considering constructing a plant to manufacture a proposed new product. The land costs $250,000, the building costs $650,000, the equipment costs $300,000, and $80,000 additional working capital is required. It is expected that the product will result in sales of $700,000 per year for 11 years, at which time the land can be sold for $350,000, the building for $400,000, and the equipment for $50,000. All of the working capital would-be recovered at the EOY 11. The annual expenses for labor, materials, and all other items are estimated to total $500,000. If the company requires a MARR of 14% per year on projects of comparable risk, determine if it should invest in the new product line. Use the AW method. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 14% per year.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A company is considering constructing a plant to manufacture a proposed new product. The land costs $250,000, the building costs $650,000, the equipment costs $300,000,
and $80,000 additional working capital is required. It is expected that the product will result in sales of $700,000 per year for 11 years, at which time the land can be sold for
$350,000, the building for $400,000, and the equipment for $50,000. All of the working capital would-be recovered at the EOY 11. The annual expenses for labor, materials,
and all other items are estimated to total $500,000. If the company requires a MARR of 14% per year on projects of comparable risk, determine if it should invest in the new
product line. Use the AW method.
Click the icon to view the interest and annuity table for discrete compounding when the MARR is 14% per year.
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