capital investment analysis

Assume you are the Operation Manager at CariBV Company, a producer of widgets, has analyzed sales projections for the next several years and has determined the only way production can keep up with sales is to build a new plant. Accordingly, you are in the process of preparing a Capital Investment Analysis for presentation to the Executive Team. The company competes in the food processing industry. Here are the facts: 1. In the year just ended annual sales volume and plant capacity were: - Sales Volume: 500,000 Units - Plant Capacity: 600,000 Units 2. Due to actions included in the strategic plan, sales are projected to increase at 20% per year for each of the next 5 years. 3. Capital Spending on a new 650,000 units/year plant will cost $1.95 million 4. If the project is approved in the next month the plant will be operating at the start of next year. 6. Gross Margins are $10.00 per unit on the production 7. Operating Costs are $1.50 per unit on the production 8. There is full depreciation of the plant, i.e., the terminal Value after 5 years is $0 9. The cost of capital or discount rate of the project is 5%. Your assignment is to prepare the Capital Investment Analysis assuming that after 5 years there is no production and no residual value for the new plant (no terminal value). Then write a recommendation on whether to undertake the project or not. Hint: use an investment techmique that incorporates the time value of money