A company is considering an investment in an item of equipment costing K150.000. The equipment would...
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A company is considering an investment in an item of equipment costing K150.000. The equipment would be used to make a product. The selling price of the product at today's prices would be K10 per unit, and the variable cost per unit (all cash costs) would be K6. The project would have a four-year life, and sales are expected to be: Year Units of sale 20.000 40,000 60,000 20.000 At today's prices, it is expected that the equipment will be sold at the end of Year 4 for K10,000. There will be additional fixed cash overheads of 50,000 each year as a result of the project, at today's price levels. 1 2 3 The company expects prices and costs to increase due to inflation at the following annual rates: Item Sales Annual inflation rate 5% 8% 8% Equipment disposal value 6% The company's money cost of capital is 12%. Ignore taxation. Variable costs Fixed costs Requirement: Calculate the NPV of the project. A company is considering an investment in an item of equipment costing K150.000. The equipment would be used to make a product. The selling price of the product at today's prices would be K10 per unit, and the variable cost per unit (all cash costs) would be K6. The project would have a four-year life, and sales are expected to be: Year Units of sale 20.000 40,000 60,000 20.000 At today's prices, it is expected that the equipment will be sold at the end of Year 4 for K10,000. There will be additional fixed cash overheads of 50,000 each year as a result of the project, at today's price levels. 1 2 3 The company expects prices and costs to increase due to inflation at the following annual rates: Item Sales Annual inflation rate 5% 8% 8% Equipment disposal value 6% The company's money cost of capital is 12%. Ignore taxation. Variable costs Fixed costs Requirement: Calculate the NPV of the project.
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Required Net Present Value NPV of the project year 1 year 2 year 3 year 4 Sales Re... View the full answer
Related Book For
Managing Supply Chain and Operations An Integrative Approach
ISBN: 978-0132832403
1st edition
Authors: Thomas Foster, Scott E. Sampson, Cynthia Wallin, Scott W Webb
Posted Date:
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