Question
An automobile manufacturer is converting an assembly line from standard vehicles to hybrid vehicle production. Conversion will cost $100 million. Production capacity will be 4000
An automobile manufacturer is converting an assembly line from standard vehicles to hybrid vehicle production. Conversion will cost $100 million. Production capacity will be 4000 vehicles in the first year and will increase by 1000 vehicles per year for all future years. Each hybrid earns a net profit of $5,000.
a. If the interest rate is 15%, how many years will it take until the present worth of the net benefits equals the $100 million initial cost? Report your answer to 2 decimal places.
b. Using the simple payback method, how many years will it take the $100 million investment to pay back? Report your answer to 2 decimal places.
c. Based on your answers to parts a. and b. would you recommend this investment? Why or why not?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started