Question
Cost of new plant and equipment: $14,400,000 Shipping and installation costs: $210,000 Unit sales: Year Units Sold 1 80,000 2
Cost of new plant and equipment: $14,400,000 \ Shipping and installation costs:\ $210,000 \ Unit sales:\ \ Year Units Sold \ 1 80,000 \ 2 130,000 \ 3 130,000 \ 4 90,000 \ 5 80,000 \ \ Sales price per unit:\ $310/unit \ in years 1 through 4, \ $260/unit \ in year 5\ Variable cost per unit:\ $100/unit \ Annual fixed costs:\ $600,000 \ Working-capital requirements:\ There will be an initial working capital requirement of \ $170,000 \ to get production started. For each year, the total investment in net working capital will be equal to \ 12 \ percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5.\ The depreciation method:\ Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after 5 years.
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