Question
Company C is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000
Company C is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000 and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000 and the equipment for $50,000. The annual expenses for labor, materials, and all other items are estimated to total $475,000. If the company requires a MARR of 15% per year of comparable risk, determine whether it should invest in the new product line using conventional B/C ratio.
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