A company is considering reconfiguring an existing production line to produce respirator masks for healthcare professionals....

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A company is considering reconfiguring an existing production line to produce respirator masks for healthcare professionals. To accelerate such development, the company has negotiated a total governmental grant of $100,000 received on two transactions; a receipt of $50,000 at the beginning and as well as at the end of the first year. Only 50% of the total grant is payable back with an annual interest rate of 1.25% at the end of the third year. There are two alternatives (configurations) to create the mask production line. The company's real Minimum Attractive Rate of Return (MARR) is 9%. Average annual inflation rate is 1.50%. The properties of these investments are provided in the following table (all dollar values are estimated in today's dollars): Configuration 1 Configuration 2 Initial Cost $180,000 $255,000 Annual Maintenance$15,000/year $22,000/year cost Annual Sales45,000 units/year 52,000 units/year Production unit cost$1.5/unit $1.0/unit Product unit sale price$3.25/unit $3.25/unit Salvage value after 5$60,000 $70,000 years CCA Rate30% 30% Service life3 years 3 years For both alternatives, answer the following questions considering applicable taxes whenever possible: [a] Calculate the NPW of both alternatives taking into account all taxes at a tax rate of 38% (i.e., for after-tax cash flow). Half-year rule applies. [b] Which alternative is economically better? A company is considering reconfiguring an existing production line to produce respirator masks for healthcare professionals. To accelerate such development, the company has negotiated a total governmental grant of $100,000 received on two transactions; a receipt of $50,000 at the beginning and as well as at the end of the first year. Only 50% of the total grant is payable back with an annual interest rate of 1.25% at the end of the third year. There are two alternatives (configurations) to create the mask production line. The company's real Minimum Attractive Rate of Return (MARR) is 9%. Average annual inflation rate is 1.50%. The properties of these investments are provided in the following table (all dollar values are estimated in today's dollars): Configuration 1 Configuration 2 Initial Cost $180,000 $255,000 Annual Maintenance$15,000/year $22,000/year cost Annual Sales45,000 units/year 52,000 units/year Production unit cost$1.5/unit $1.0/unit Product unit sale price$3.25/unit $3.25/unit Salvage value after 5$60,000 $70,000 years CCA Rate30% 30% Service life3 years 3 years For both alternatives, answer the following questions considering applicable taxes whenever possible: [a] Calculate the NPW of both alternatives taking into account all taxes at a tax rate of 38% (i.e., for after-tax cash flow). Half-year rule applies. [b] Which alternative is economically better?

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PartA Calculation of NPW for the both Alternatives Note Inflation rate will lead to increase in the Cost of Production per unit and Sale price per uni... View the full answer