Your company is interested in manufacturing screw piles for a local company that does foundation repairs...
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Your company is interested in manufacturing screw piles for a local company that does foundation repairs for cottages. In order to do the project (which lasts 3 years), your company needs to set up their machine shop to manufacture the components of the piles, at an upfront cost of $105,943.43. The screw piles themselves cost $52.51 each in steel (which inflates at 5% per year), $10 each for a painted coating (which inflates at 1% per year), and $6.41 each in other materials (the cost of which goes up with inflation). The local company wants to buy 1000 of these screw piles per year for 3 years from your company, and is expecting the purchase price to stay constant (not vary with inflation). Your company evaluates projects like this using an MARRR of 7%, and inflation over the past few years has been 1.87%. Answer the following questions: A) Calculate i, i* and f B) Draw a cash flow diagram for this situation (you can use the variable "C" for the sales price of each pile) with the costs shown for each year C) Solve for the value of C such that this operation breaks even (this can be a decimal value). Your full work must be shown including your factors for full marks. Your company is interested in manufacturing screw piles for a local company that does foundation repairs for cottages. In order to do the project (which lasts 3 years), your company needs to set up their machine shop to manufacture the components of the piles, at an upfront cost of $105,943.43. The screw piles themselves cost $52.51 each in steel (which inflates at 5% per year), $10 each for a painted coating (which inflates at 1% per year), and $6.41 each in other materials (the cost of which goes up with inflation). The local company wants to buy 1000 of these screw piles per year for 3 years from your company, and is expecting the purchase price to stay constant (not vary with inflation). Your company evaluates projects like this using an MARRR of 7%, and inflation over the past few years has been 1.87%. Answer the following questions: A) Calculate i, i* and f B) Draw a cash flow diagram for this situation (you can use the variable "C" for the sales price of each pile) with the costs shown for each year C) Solve for the value of C such that this operation breaks even (this can be a decimal value). Your full work must be shown including your factors for full marks.
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Answer rating: 100% (QA)
A Lets calculate i i and f i Inflation rate for steel 5 per year i Inflation rate for painted coating 1 per year f Overall inflation rate for other ma... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
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