Problem 4 - Depreciation $5000 each year Alpha Company is going to expand its product range and intends to start Including depreciation cost of the new equipment $2500 each year manufacturing a new product Z whose forecast sales volume is 1 000 per year and will last four years. - Research and development (R&D) costs that have been incurred regarding the new product Z $300 Additional information on Alpha Company and its investment project inflation rate applicable to all fixed costs is 5% per year 1. The production line selling price is $20 000 and requires borrowing $6, 000 @ 9% per year. The loan is borrowed 1 year before the launch of 5. Working capital investment at the start of year 1 is $2 000 Product Z and is to be redeemed at the end of year 4. At the end of 6. Financing working capital increase caused by the project will require year 4 the production line will be sold for $10 000. borrowing a loan totaling $2 000 loan at 9% per year. The loan is to be 2. Selling price: $20/unit (as of today), inflation rate applicable to selling redeemed at the end of year 4. price is 6% per year 7. Discount rate to be used by Alpha is 10% 8. The general rate of inflation for the whole economy is expected to be 3. Variable cost: 6% per year - Materials (wood and glue) -$5/unit - Labor -$1/unit - Selling costs -$1/unit 9. Tax liabilities are paid in the year in which they arise. The company pays 25% of annual profits. Ignore capital allowance. inflation rate applicable to all kinds of variable costs is 6% per year 4. Fixed costs breakdown: Your task: - Salary costs $600 (General manager and Chief accountant) Calculate the net present value of the investment in the new equipment - Annual insurance costs for the new production line is $100 as of today and advise if the investment is financially acceptable.
Problem 4 - Depreciation $5000 each year Alpha Company is going to expand its product range and intends to start Including depreciation cost of the new equipment $2500 each year manufacturing a new product Z whose forecast sales volume is 1 000 per year and will last four years. - Research and development (R&D) costs that have been incurred regarding the new product Z $300 Additional information on Alpha Company and its investment project inflation rate applicable to all fixed costs is 5% per year 1. The production line selling price is $20 000 and requires borrowing $6, 000 @ 9% per year. The loan is borrowed 1 year before the launch of 5. Working capital investment at the start of year 1 is $2 000 Product Z and is to be redeemed at the end of year 4. At the end of 6. Financing working capital increase caused by the project will require year 4 the production line will be sold for $10 000. borrowing a loan totaling $2 000 loan at 9% per year. The loan is to be 2. Selling price: $20/unit (as of today), inflation rate applicable to selling redeemed at the end of year 4. price is 6% per year 7. Discount rate to be used by Alpha is 10% 8. The general rate of inflation for the whole economy is expected to be 3. Variable cost: 6% per year - Materials (wood and glue) -$5/unit - Labor -$1/unit - Selling costs -$1/unit 9. Tax liabilities are paid in the year in which they arise. The company pays 25% of annual profits. Ignore capital allowance. inflation rate applicable to all kinds of variable costs is 6% per year 4. Fixed costs breakdown: Your task: - Salary costs $600 (General manager and Chief accountant) Calculate the net present value of the investment in the new equipment - Annual insurance costs for the new production line is $100 as of today and advise if the investment is financially acceptable.
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 15P
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Transcribed Image Text:Problem 4
-Depreciation $5000 each year
Including depreciation cost of the new equipment $2500 each year
Alpha Company is going to expand its product range and intends to start
manufacturing a new product Z whose forecast sales volume is 1 000 per
year and will last four years.
Research and development (R&D) costs that have been incurred
regarding the new product Z $300
Additional information on Alpha Company and its investment project
inflation rate applicable to all fixed costs is 5% per year
1. The production line selling price is $20 000 and requires borrowing $6
000 @ 9% per year. The loan is borrowed 1 vear before the launch of 5. Working capital investment at the start of year 1 is $2 000
Product Z and is to be redeemed at the end of year 4. At the end of 6. Financing working capital increase caused by the project will require
year 4 the production line will be sold for $10 000.
borrowing a loan totaling $2 000 loan at 9% per year. The loan is to be
2. Selling price: $20/unit (as of today), inflation rate applicable to selling redeemed at the end of year 4.
price is 6% per year
7. Discount rate to be used by Alpha is 10%
3. Variable cost:
8. The general rate of inflation for the whole economy is expected to be
6% per year
- Materials (wood and glue) -$5/unit
9. Tax liabilities are paid in the year in which they arise. The company pays
- Labor -$1/unit
25% of annual profits. Ignore capital allowance.
- Selling costs -$1/unit
inflation rate applicable to all kinds of variable costs is 6% per year
4. Fixed costs breakdown:
Your task:
- Salary costs $600 (General manager and Chief accountant)
Calculate the net present value of the investment in the new equipment
- Annual insurance costs for the new production line is $100 as of today and advise if the investment is financially acceptable.
Андрей Александрович
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