Question
A company plans to install an additional production line as demand has increased considerably and apparently steadily. The production line costs $ 1,000,000 and will
A company plans to install an additional production line as demand has increased considerably and apparently steadily. The production line costs $ 1,000,000 and will last for 4 years, then it will be worthless. The depreciation method used is the accelerated method of 150%. The number of units produced and sold is expected to be 50,000 in the first year. Each year thereafter, the level will increase by 5,000 units. The selling price per unit is $ 20 the first year. Variable costs are expected to be $ 7.50 per unit for the first year. Headline price inflation is 15%, but the selling price and variable costs increase at different rates - the rate of increase in the price of the Sales price is 17%, while the variable cost price increase rate is 10%. The after-tax MARR is 20% per annum (annual nominal, compounded annually), corporate taxes 30%.
a) Calculate the cash flows before taxes
b) Calculate the cash flows after taxes
c) Evaluate the project with the CPN method
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