A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building cost $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 the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000 and all of the working capital would be recovered at EOY10. The annual expense for labor, materials, and all other items are estimated to total $500,000 and will decrease by 20,000 per year until year 10. If the company requires a MARR of 12% per year on projects of comparable risk, determine if it should invest in the new product line. a) Use IRR and AW method. b) Determine the simple and payback period (Upload the picture of your complete solutions including the correct cash flow diagram and your conclusion.)

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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A company is considering constructing a plant to
manufacture a proposed new product. The land
costs $300,000, the building cost $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 the land can be sold for $400,000,
the building for $350,000, and the equipment for
$50,000 and all of the working capital would be
recovered at EOY10. The annual expense for labor,
materials, and all other items are estimated to total
$500,000 and will decrease by 20,000 per year until
year 10. If the company requires a MARR of 12% per
year on projects of comparable risk, determine if it
should invest in the new product line.
a) Use IRR and AW method.
b) Determine the simple and payback period
(Upload the picture of your complete solutions
including the correct cash flow diagram
and your conclusion.)
Transcribed Image Text:A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building cost $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 the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000 and all of the working capital would be recovered at EOY10. The annual expense for labor, materials, and all other items are estimated to total $500,000 and will decrease by 20,000 per year until year 10. If the company requires a MARR of 12% per year on projects of comparable risk, determine if it should invest in the new product line. a) Use IRR and AW method. b) Determine the simple and payback period (Upload the picture of your complete solutions including the correct cash flow diagram and your conclusion.)
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