Sun Industries is considering the expansion of its operation by extending its plant. The new plant,...

   

Transcribed Image Text:

Sun Industries is considering the expansion of its operation by extending its plant. The new plant, with a life of 10 years, the cost of the plant and associated costs to bring the plan to work totalled at $3,000,000. The plant will have $50,000 scrap value. In order to fund this project, Sun Industries has to borrow from the bank some capital. Interest expense is $150,000 per annum. The annual revenue and expenses associated with the project are estimated to be as follows: Year Revenue: Sales Revenue Less: Expenses: Operating expenses Interest expenses 1 2,000,000 1,450,000 150,000 2-10 2,250,000 1,450,000 150,000 Profit/ (Loss) The required rate of return is 13%. Required: a) Prepare a table of Cash Flows from year 0 to 10. b) Calculate $ 70,000 $ 320,000 i) Net Present Value (NPV) ii) Internal Rate of Return (IRR) iii) Payback Period iv) Accounting Rate of Return (ARR) c) Make recommendations to accept or reject the new project with full explanations of why Sun Industries is considering the expansion of its operation by extending its plant. The new plant, with a life of 10 years, the cost of the plant and associated costs to bring the plan to work totalled at $3,000,000. The plant will have $50,000 scrap value. In order to fund this project, Sun Industries has to borrow from the bank some capital. Interest expense is $150,000 per annum. The annual revenue and expenses associated with the project are estimated to be as follows: Year Revenue: Sales Revenue Less: Expenses: Operating expenses Interest expenses 1 2,000,000 1,450,000 150,000 2-10 2,250,000 1,450,000 150,000 Profit/ (Loss) The required rate of return is 13%. Required: a) Prepare a table of Cash Flows from year 0 to 10. b) Calculate $ 70,000 $ 320,000 i) Net Present Value (NPV) ii) Internal Rate of Return (IRR) iii) Payback Period iv) Accounting Rate of Return (ARR) c) Make recommendations to accept or reject the new project with full explanations of why

Answer rating: 100% (QA)

Here are the steps to solve this problem a Table of Cash Flows YearCash Flows 03000000 Initial inves... View the full answer