Skatez n' co. is considering building a new plant. Gustav Jenkins, the company's marketing manager, is a supporter of the new plant. Charles Barles, the company's CFO is not sure they need a new plant. Currently, they purchase their skateboard blanks from china. The following figures were estimated for the new plant: cost of plant $6,000,000 Annual cash inflow $7,000,000 annual cash outflow $6,540,000 Estimated useful life of plant 15 years Salvage value of plant $3,000,000 Discount rate 11% Jenkins belives that this understates the value of the plant, claiming sales will be $400,000 higher than claimed, with insurance and warranty claim savings of $60,000 per year. He also believes the project is safter than above, at an 8% discount rate. What is the net present value of the project based on original projections? What if Jenkins estimated the $60,000 savings correctly, but the discount rate remains at 11%?
Skatez n' co. is considering building a new plant. Gustav Jenkins, the company's marketing manager, is a supporter of the new plant. Charles Barles, the company's CFO is not sure they need a new plant. Currently, they purchase their skateboard blanks from china. The following figures were estimated for the new plant:
| cost of plant | $6,000,000 |
| Annual |
$7,000,000 |
| annual |
$6,540,000 |
| Estimated useful life of plant | 15 years |
| Salvage value of plant | $3,000,000 |
| Discount rate | 11% |
Jenkins belives that this understates the value of the plant, claiming sales will be $400,000 higher than claimed, with insurance and warranty claim savings of $60,000 per year. He also believes the project is safter than above, at an 8% discount rate.
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