On Monday morning you get an email from your company CFO asking to help her / him
Question:
On Monday morning you get an email from your company CFO asking to help herhim with an NPV calculation. The CEO and production manager are considering an investment to expand the company's production capacity. They wish to invest in a new production facility in which the company can manufacture, assemble and package what has been produced for delivery. They asked the CFO who decided to pass the buck to you to calculate the Net Present Value NPV and make the decision IF to invest.
You are offered the following basis for calculation:
Economic lifetime for the production plant is calculated at years.
Sales of million products per year.
Each product is sold at a price of SEK per piece.
Material costs on average SEK per piece.
Salary costs for staff amount to SEK million annually regardless of production volume.
The company's WACC is
Calculate the Net Present Value NPV and decide IF you give the CEO a goahead to do the investment given that the production facility costs SEK million in basic investment but is estimated to have a salvage value of SEK in years?
Multinational Business Finance
ISBN: 978-0132743464
13th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett