Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation.

A company wants to build a new factory for increased capacity. Using the Net Present Value (NPV) method of capital budgeting, determine the proposals appropriateness and economic viability with the following information:

Building a new factory will increase capacity by 30%.

The current capacity is $10 million of sales with a 5% profit margin.

The factory costs $10 million to build.

The new capacity will meet the companys needs for 10 years.

The factory is worth $14 million over 10 years.