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.)

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

Section: Chapter Questions

Problem 1QTC

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