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 redeemed at the end of year 4. 2. Selling price: $20/unit (as of today), inflation rate applicable to selling 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 25% of annual profits. Ignore capital allowance. - Labor -$1/unit - 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.
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 redeemed at the end of year 4. 2. Selling price: $20/unit (as of today), inflation rate applicable to selling 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 25% of annual profits. Ignore capital allowance. - Labor -$1/unit - 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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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