Question
Glenpatrick plc is considering an investment in a manufacturing machine for use in their recently update facility. The cost of the new machine is 860,000.
Glenpatrick plc is considering an investment in a manufacturing machine for use in their recently update facility. The cost of the new machine is 860,000. Glenpatrick plc uses a 10% cost of capital for investment appraisal purposes. Sales units per annum will be: Year 1 Year 2 Year 3 Year 4 14,000 15,000 18,900 17,200 Selling price is 99.00 (current terms) per unit and inflation is expected at 5%. Variable costs per unit are expected to be 75.00 (current terms) and inflation is to be at 4%. Fixed costs are estimated to be 15,000 per annum, with no inflation. You have been given the below information also: Capital allowances are to be spread evenly over the four years of the project. The applicable tax charge is 35% for any relevant taxable cash-flows and is paid a year in arrears. Working capital requirement of 20% of investment is needed in place at the start of the project.
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