XYZ Pty Ltd is considering a proposal for two production lines for its Can making plant. Cost
Question:
XYZ Pty Ltd is considering a proposal for two production lines for its Can making plant. Cost of each production line is $25,000,000. First plant will be from the company's reserves and surplus. Second plant will be commissioned by the end of first year. Cost of second plant will be taken as loan from bank @ 10% interest and equal repayment. Expected life of each plant is 4 years. Output capacity of one production line is 3000 cans/ hr. There is a plan to operate three six-hour shifts 250 days per year. Contract price with customer is $2.0/Can. Raw material cost is $0.90/Can, Labour cost is $0.20/Can, and Overhead cost is 50 % of labour cost. The Company can sell each discarded Plant at the end of Plant’s life and the sale value of each Plant is expected to be $5,000,000. Assume discounting rate of 10%, investment occurring at the starting and gross profit acquired at the end of any period. Assume straight-line depreciation and 50 % tax rates.
What is the payback period?
What is yearly net profit?
Determine Net Present Value of the project,
Internal Rate of Return of the project.
What is your recommendation?
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver