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Due to the current worldwide shortage of methyl methacrylate and the economic incentives for increasing production, the Oxo Chemical Company (large, multinational company) is doubling
Due to the current worldwide shortage of methyl methacrylate and the economic incentives for increasing production, the Oxo Chemical Company (large, multinational company) is doubling the capacity of their current plant. At the end of this year, the company will have spent $1,250,000 on new equipment, $100,000 on acquiring patent rights, and $200,000 on spare parts that will be stored onsite. Although, the plant will not be operational until the middle of next year, the increa in capacity is expected to increase annual revenues by $700,000 /year and operating costs by $200,000 /year. The patent will be amortized straight line over five years with a full year of deduction in the first year following acquisition. All equipment will be depreciated using 5 year MACRS depreciation with a half-year deduction in the first year. The spare parts may be treated as working capital. Remaining book-value will be written off at the end of the project evaluation life. The effective tax rate is 40%. Using the blank table on the next page, construct a cash flow table for the following project using a three-year project evaluation life. Project Title: Corporate financial situation: Minimum rafe of return, MARR = Other relevant project info. Due to the current worldwide shortage of methyl methacrylate and the economic incentives for increasing production, the Oxo Chemical Company (large, multinational company) is doubling the capacity of their current plant. At the end of this year, the company will have spent $1,250,000 on new equipment, $100,000 on acquiring patent rights, and $200,000 on spare parts that will be stored onsite. Although, the plant will not be operational until the middle of next year, the increa in capacity is expected to increase annual revenues by $700,000 /year and operating costs by $200,000 /year. The patent will be amortized straight line over five years with a full year of deduction in the first year following acquisition. All equipment will be depreciated using 5 year MACRS depreciation with a half-year deduction in the first year. The spare parts may be treated as working capital. Remaining book-value will be written off at the end of the project evaluation life. The effective tax rate is 40%. Using the blank table on the next page, construct a cash flow table for the following project using a three-year project evaluation life. Project Title: Corporate financial situation: Minimum rafe of return, MARR = Other relevant project info
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