The investment required is $1,100,000 (Land: $200,000, Building: $600,000, Equipment: $300,000). the company controller considers, in agreement

Fantastic news! We've Found the answer you've been seeking!

Question:

The investment required is $1,100,000 (Land: $200,000, Building: $600,000, Equipment: $300,000). the company controller considers, in agreement with the chief production engineer, that these new installations should last at least 16 years, after which they will need to be replaced. After 16 years, the building and the equipment will have a resale value of $500,000 while the residual value of the land will have increased by 4% per year.

The facilities will allow the company to generate annual operating revenues of $200,000 in the first year, $215,000 the second year, $230,000 the third year, and so on up to $425,000 the sixteenth year (therefore an increase of $15,000 per year), while the annual operating expenses will be $85,000 per year. the first year, $87,550 the second year, $90,176.50 the third year, and so on up to $132,427.23 the sixteenth year (thus an increase of 3% per year). (Fund movements occur at the end of the period).

Due to the rapid evolution of technology, it is estimated that in 5 years, it will be necessary to update the facilities. This investment, at a cost of $100,000, will avoid an annual operating expense (end of period) of $25,000 thereafter, compared to the operating expenses originally planned. Moreover, it is estimated that in 12 years, a new update will be required at a cost of $50,000. This latest update will not cause any changes additional to the operating expenses already considered.

You are asked to comment on the economic profitability of this project if the rate is 13.9950% capitalized weekly using the present value method. Following your calculations, you are asked to determine the half-yearly annuity at the start of the period. a pay-to-pay transformation is not allowed in this question. You must use the set financial mathematics formulas (annuity, arithmetic and geometric gradients). Do not use the NPV function to resolve this issue. It is recommended to draw the cash flow.