The ABC company is considering constructing a plant to manufacture a proposed new product. The land costs P15,000,000, the building costs P30,000,000, the equipment costs P12,500,000, and P5,000,000 working capital is required. At the end of 10 years, the land can be sold for P25,000,000, the building for P12,000,000, the equipment for P250,000 and all of the working capital recovered. The annual disbursements for labor, materials, and all other expenses are estimated to cost P23,750,000. If the company requires a minimum return of 25%, what should be the minimum annual sales for 10 years to justify the investment

The ABC company is considering constructing a plant to manufacture a proposed new product. The land costs P15,000,000, the building costs P30,000,000, the equipment costs P12,500,000, and P5,000,000 working capital is required. At the end of 10 years, the land can be sold for P25,000,000, the building for P12,000,000, the equipment for P250,000 and all of the working capital recovered. The annual disbursements for labor, materials, and all other expenses are estimated to cost P23,750,000. If the company requires a minimum return of 25%, what should be the minimum annual sales for 10 years to justify the investment

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

See similar textbooks

Related questions

Q: Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect…

A: Given Information: Cost of Equipment - $495,000 Depreciation - 100 percent bonus depreciation Sales…

Q: A new machine costing $100,000 is expected to save the McKaig Brick Company $15,000 per year for 12…

A: Annual net cash flows is calculated as the difference between the annual cash flows and cash…

Q: The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The…

A: NPV stands for Net Present Value, which is a financial metric used to evaluate the profitability of…

Q: Master Machine Berhad is considering a four-year project to improve its production efficiency.…

A: Net present value is difference between present value of cash outflow and present value of…

Q: Dog Up! Franks is looking at a new sausage system with an initial cost of $435,000 that will last…

A: NPV is the Net Present Value and is a capital budgeting technique used to evaluate the…

Q: A Funiture Factory is considering buying a new automated planing machine for a cost of $80,250. This…

A: Time cashflows 0(now) = -$80250-$2800= -$83050 1 0 2 0 3 -$1000 4 -$3000

Q: A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net…

A: Introduction: To decide if the project is desirable, we have to calculate net present worth of this…

Q: Aasim Corporation has an opportunity to invest in a machine to manufacture soft drinks for period of…

A: Net cash flow refers to the total amount of cash generated or consumed by a business or a specific…

Q: Frank’s Franks is looking at a new sausage system with an installed cost of $397,800. This cost will…

A: Cash outflow at time 0 = Cost + Working capital Cash outflow at time 0 = - (397800+28560) = -426360…

Q: A company is considering the introduction of a new product line. The initial investment required for…

A: Computation of equivalent annual investments: AW=-$620,000A/P,10%,6=-$620,000×0.2296=-$142,352

Q: Crane Company is considering buying a new farm that it plans to operate for 10 years. The farm will…

A: Capital budgeting refers to the procedure that the company undergoes when it needs to invest in the…

Q: Dog Up! Franks is looking at a new sausage system with an initial cost of $475,000 that will last…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: Van Nuys Company is considering the purchase of a new machine which will cost $7,370. The machine…

A: Net present value: It is the difference between the present value of cash inflow and the present…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: INTRODUCTION

VIEW

Step 2: SOLUTION

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The ABC company is considering constructing a plant to manufacture a proposed new product. The land costs P15,000,000, the building costs P30,000,000, the equipment costs P12,500,000, and P5,000,000 working capital is required. At the end of 12 years, the land can be sold for P25,000,000, the building for P12,000,000, the equipment for P250,000 and all of the working capital recovered. The annual disbursements for labor,materials, and all other expenses are estimated to cost P23,750,000. If the company requires a minimum return of 25%, what should be the minimum annual sales for 12 years to justify the investment?Find: Minimum annual sales for 12 years to justify the investmentGiven: (see attached photo)
A company is considering constructing a plant to manufacture aproposed new product. The land costs P5,000,000, the building costsP30,000,000, the equipment costs P5,000,000, and P60,000,000additional working capital is required. It is expected that the productwill result in sales of P20,000,000 per year for 10 years, at which timethe land can be sold for P13,000,000, the building for P18,000,000,and the equipment for P1,500,000. All of the working capital wouldbe recovered at the EOY 10. The annual expenses for labor, materials,and all other items are estimated to total P18,000,000. If the companyrequires a MARR of 15% per year on projects of comparable risk,determine if it should invest in the new product line. Use the AWmethod.
A company is considering constructing a plant to manufacture a proposed new product.The land costs $295,000, the building costs $590,000, the equipment costs $250,000, and$98,000 additional working capital is required. It is expected that the product will result insales of $735,000 per year for 10 years, at which time the land can be sold for $386,000, thebuilding for $348,000, and the equipment for $42,000. All of the working capital would berecovered at the EOY 10. The annual expenses for labor, materials, and all other items areestimated to total $458,000.If the company requires a MARR of 15% per year on projects of comparable risk,determine if it should invest in the new product line. Use the AW method.
A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000, the equipment for $50,000, and the working capital of $100,000 will be recovered. The company is expecting to sell 10,000 units of the product every year. The annual expenses for labor, materials, and all other items are estimated to total $475,000. If the company requires a MARR of 8% per year, determine the profit/unit of the new product.
Your company wants to bid on the sale of 10 customized machines per year for five years. The initial costs for the project are €1.6 million with a salvage value of €800,000 after five years. The machine will be depreciated straight- line to zero over the five years. Annual fixed costs are estimated at €700,000. Variable cost per machine is €81,500. The project requires net working capital of €120,000. The company has a 34% tax rate and desires a 15% return on the project. What is the minimum price that the company should bid per single machine? €198,196 €212,028 €219,887 €221,009 None of the above.
Delta plans to buy a new machine. The cost of the machine, payable immediately, is P800,000 and the machine has an expected life of five years. Additional investment in working capital of P90,000 will be required at the start of the first year of operation. At the end of five years, the machine will be sold for scrap, with the scrap value expected to be 5% of the initial purchase cost of the machine. The machine will not be replaced. Production and sales from the new machine are expected to be 100,000 units per year. Each unit can be sold for P16 per unit and will incur variable costs of P11 per unit. Incremental fixed costs arising from the operation of the machine will be P160,000 per year. Delta has an after-tax cost of capital of 11% which it uses as a discount rate in investment appraisal. The company pays profit tax one year in arrears at an annual rate of 30% per year. Capital allowances and inflation should be ignored. Required: (a) Calculate the net present value of investing…
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment.
Your company is considering a project which will require the purchase of $635,000 in new equipment. The company expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $224,000. Initial net working capital equal to 28.00% of sales will be required. All of the net working capital will be recovered at the end of the project. The firm requires an 8.00% return on similar investments. The tax rate is 35%, and the project life is 5 years. There are no other operating expenses. Assume the present value of the CCA tax shield is $102,000. What is the project's NPV? Options $126,121 $129,530 $132,939 $136,347 $139,756
Kappa Holdings is looking at a new system with an installed cost of $705,000. This cost will be depreciated straight-line to zero over the project's 6-year life, at the end of which the system can be salvaged for $95,000. The system will save the firm $203,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $55,000, which will be returned at the end of the project. If the tax rate is 25 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $450,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $60,000 at the end of the project in 5 years. Sales would be $315,000 per year, with annual fixed costs of $52,000 and variable costs equal to 39 percent of sales. The project would require an investment of $35,000 in NWC that would be returned at the end of the project. The tax rate is 25 percent and the required return is 12 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $495,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $87,000 at the end of the project in 5 years. Sales would be $331,000 per year, with annual fixed costs of $61,000 and variable costs equal to 36 percent of sales. The project would require an investment of $53,000 in NWC that would be returned at the end of the project. The tax rate is 24 percent and the required return is 9 percent. Calculate the NPV of this project.
Bourque Enterprises is considering a new project. The project will generate sales of $1.6 million, $2.3 million, $2.2 million, and $1.7 million over the next four years, respectively. The fixed assets required for the project will cost $2.1 million and will be eligible for 100 percent bonus depreciation. At the end of the project, the fixed assets can be sold for $165,000. Variable costs will be 25 percent of sales and fixed costs will be $540,000 per year. The project will require NWC equal to 20 percent of sales that must be accumulated in the year prior to sales. The required return on the project is 13 and the tax rate is 24 percent. What is the NPV of the project?