Expand Your Critical Thinking 25-02 d (Essay) Hawke Skateboards is considering building a new plant. Bob Skerritt, the company's marketing manager, is an enthusiastic supporter of the new plant. Lucy Liu, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant. Cost of plant Annual cash inflows Annual cash outflows $4,000,000 4,000,000 3,540,000 Estimated useful life Salvage value Discount rate 15 years $2,000,000 11% Bob Skerritt believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy American" patriotism that he believes is common among skateboarders. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $200,000 higher than projected above, and that the savings from lower warranty costs and legal costs will be $60,000 per year. He also believes that the project is not as risky as assumed above, and that a 9% discount rate is more reasonable. NPV Based on original projections New projections using the 11% rate Original projections using the 9% rate $(274,200) $1,595,426 $256,997 (d) Comment on the Net present values. Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT Expand Your Critical Thinking 25-02 d (Essay) Hawke Skateboards is considering building a new plant. Bob Skerritt, the company's marketing manager, is an enthusiastic supporter of the new plant. Lucy Liu, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant. Cost of plant Annual cash inflows Annual cash outflows $4,000,000 4,000,000 3,540,000 Estimated useful life Salvage value Discount rate 15 years $2,000,000 11% Bob Skerritt believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy American" patriotism that he believes is common among skateboarders. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $200,000 higher than projected above, and that the savings from lower warranty costs and legal costs will be $60,000 per year. He also believes that the project is not as risky as assumed above, and that a 9% discount rate is more reasonable. NPV Based on original projections New projections using the 11% rate Original projections using the 9% rate $(274,200) $1,595,426 $256,997 (d) Comment on the Net present values. Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT
