Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ACME Industries is a biotechnology company with an annual revenue of RM70 billion and over 5,000 employees worldwide. The following information deals with considerations regarding

ACME Industries is a biotechnology company with an annual revenue of RM70 billion and over 5,000 employees worldwide.

The following information deals with considerations regarding a new product. If the product in question is to be manufactured, it will be necessary to build a new production line, which will require the following capital investments:

Injection molding machine: RM2.3 million

Molds: RM2.3 million

Vision system: RM1.3 million

Automation equipment: RM4.3 million

Interior furnishings, etc.: RM1.3 million

The expected sales revenue of the product and the expected variable costs of manufacturing the product are shown in TABLE 1. Assume the Companys MARR is at 15% per year.

image text in transcribed

a. Evaluate whether this is a profitable investment or not. Assume no salvage value of the equipment after 5 years.

b. In the foregoing, the investment is estimated based on a life of 5 years. However, after the fifth year, parts of the production line are expected to be used in the construction of new production lines, and therefore they will continue to have value:

Injection molding machine: RM1.0 million

Vision system: RM1.0 million.

Automation equipment: RM2.0 million.

Estimate the investments internal rate of return.

c. Determine the net present value of the investment if taking into account the value that the three parts of the production line as in part (b) are expected to have after the 5 years.

d. Construct a spider plot of equivalent worth (PW, AW, or FW) if the initial capital investment for the project varies by + 50% and sale revenue varies by +40%.

1 2 3 4 5 3.75 6.60 15.40 21.90 90 27 27.90 0.05 0.10 0.20 0.25 0.30 Year Sales revenue (million RM) Costs for sterilization (million RM) Costs for materials (million RM) Payroll costs (million RM) Additional costs (million RM) 1.80 3.10 5.60 7.40 8.95 0.15 0.20 0.40 0.50 0.60 0.90 0.30 0.10 0.05 0.05 1 2 3 4 5 3.75 6.60 15.40 21.90 90 27 27.90 0.05 0.10 0.20 0.25 0.30 Year Sales revenue (million RM) Costs for sterilization (million RM) Costs for materials (million RM) Payroll costs (million RM) Additional costs (million RM) 1.80 3.10 5.60 7.40 8.95 0.15 0.20 0.40 0.50 0.60 0.90 0.30 0.10 0.05 0.05

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Digging For Disclosure Tactics For Protecting Your Firms Assets From Swindlers, Scammers, And Imposters

Authors: Kenneth S. Springer, Joelle Scott

1st Edition

0131385569, 9780131385566

More Books

Students also viewed these Accounting questions