Heavy Motors is taking a look at a new product line that will take a few years to create. New lab equipment would cost Php 10 million initial investment, and salaries and other expenses will total Php 15 million each year for the next four years. The new product revenues begin in year 6 and average Php 15 million per year for the rest of the study period. Is this a good venture for Heavy Motors? use a 12% MARR and a 20-year time period? Use the following method to support your recommendation (Future Worth and ERR - use € = 12%) %3D

Heavy Motors is taking a look at a new product line that will take a few years to create. New lab equipment would cost Php 10 million initial investment, and salaries and other expenses will total Php 15 million each year for the next four years. The new product revenues begin in year 6 and average Php 15 million per year for the rest of the study period. Is this a good venture for Heavy Motors? use a 12% MARR and a 20-year time period? Use the following method to support your recommendation (Future Worth and ERR - use € = 12%) %3D

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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United Pigpen (UP) is considering a proposal to manufacture high protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $260,000, and thereafter the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $3.1 million. This could be depreciated for tax purposes over 10 years. However, UP expects to terminate the project at the end of eight years and to resell the plant and equipment in year 8 for $1,040,000. Finally, the project requires an initial investment in working capital of $910,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $10.9 million, and thereafter sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are…
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