A manufacturing company is considering a capacity expansion investment at the cost of $242,481 with no salvage value. The expansion would enable the company to produce up to 33,723 parts per year and the useful life of the additional capacity is seven years. Each part would generate $1.74 net profit and annual operating and maintenance costs are estimated at $26,137 per year. The market demand for the parts is unlimited, all parts produced will be sold. The MARR of the firm is 10%. The minimum annual production rate to make this investment justifiable is:
A manufacturing company is considering a capacity expansion investment at the cost of $242,481 with no salvage value. The expansion would enable the company to produce up to 33,723 parts per year and the useful life of the additional capacity is seven years. Each part would generate $1.74 net profit and annual operating and maintenance costs are estimated at $26,137 per year. The market demand for the parts is unlimited, all parts produced will be sold. The MARR of the firm is 10%. The minimum annual production rate to make this investment justifiable is:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A manufacturing company is considering a capacity expansion investment at the cost of $242,481 with no salvage value. The expansion would enable the company to produce up to 33,723 parts per year and the useful life of the additional capacity is seven years. Each part would generate $1.74 net profit and annual operating and maintenance costs are estimated at $26,137 per year. The market demand for the parts is unlimited, all parts produced will be sold. The MARR of the firm is 10%.
The minimum annual production rate to make this investment justifiable is:
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