Q5/ A large polymer companyhad formulated a new productthat will be used as adhesive tomanage concrete cracks. Apreliminary design reported theestimated parameters asfollows: Full productioncapacity= 1x106 kg/ yr, Totalcapital investment = $ 30 x 106,Fixed capital investment=$ 24million, Working capital cost=$6million, Sum of the variableproduct costs at full capacity=$7 million/yr Sum of the fixedcosts (except depreciation) = $2 million/yr, Selling price of theproduct= $11/kg, Use the 7-years recovery period, 2.4 x106$/yr depreciation straight-method. Does the project offeran acceptable rate of return?Evaluate the profitabilitymeasure using the Return oninvestment method.

Revenue = $11 *106 Fixed costs = $2*106 Variable cost = $7*106 Depreciation is $2.4 *106 /year for…

Answered: method. Does the project offer an…

method. Does the project offer an acceptable rate of return? Evaluate the profitability measure using the Return on investment method.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 7P

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