Eradicator Food Prep, Inc. has invested $10million to construct a food irradiation plant. Thistechnology destroys organisms that cause spoilageand disease, thus extending the shelf life of freshfoods and the distances over which they can beshipped. The plant can handle about 300,000 poundsof produce in an hour, and it will be operated for4,000 hours a year. The net expected operating andmaintenance costs (taking into account income-taxeffects) would be $4 million per year. The plant isexpected to have a useful life of 15 years with a netsalvage value of $800,000. The firm’s interest rateis 15%.(a) If investors in the company want to recover theplant investment within six years of operation(rather than 15 years), what would be the equivalent annual revenues that must be generated?(b) To generate annual revenues determined in part(a), what minimum processing fee per poundshould the company charge to its producers?
Eradicator Food Prep, Inc. has invested $10
million to construct a food irradiation plant. This
technology destroys organisms that cause spoilage
and disease, thus extending the shelf life of fresh
foods and the distances over which they can be
shipped. The plant can handle about 300,000 pounds
of produce in an hour, and it will be operated for
4,000 hours a year. The net expected operating and
maintenance costs (taking into account income-tax
effects) would be $4 million per year. The plant is
expected to have a useful life of 15 years with a net
salvage value of $800,000. The firm’s interest rate
is 15%.
(a) If investors in the company want to recover the
plant investment within six years of operation
(rather than 15 years), what would be the equivalent annual revenues that must be generated?
(b) To generate annual revenues determined in part
(a), what minimum processing fee per pound
should the company charge to its producers?
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