A company is considering constructing a plant to manufacture a proposed new product. The land costs P5,000,000, the building costs P30,000,000, the equipment costs P5,000,000, and P60,000,000 additional working capital is required. It is expected that the product will result in sales of P20,000,000 per year for 10 years, at which time the land can be sold for P13,000,000, the building for P18,000,000, and the equipment for P1,500,000. 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 P18,000,000. 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 P5,000,000, the building costs
P30,000,000, the equipment costs P5,000,000, and P60,000,000
additional
will result in sales of P20,000,000 per year for 10 years, at which time
the land can be sold for P13,000,000, the building for P18,000,000,
and the equipment for P1,500,000. 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 P18,000,000. 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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