Question
Hilary Maskona, the CEO of AllVax, met with her advisor, Vincent Purell, to review a capital-expenditure proposal on a production plant to produce COVID-19 vaccines
Hilary Maskona, the CEO of AllVax, met with her advisor, Vincent Purell, to review a capital-expenditure proposal on a production plant to produce COVID-19 vaccines using mRNA technology. The proposal, named AntiCov Flow project, calls for an expenditure of $9 million spread over three years to convert an existing production plant from batch to continuous-flow technology and to install sophisticated state-of-the-art process controls throughout the plant. This project is only feasible with a continuous source of cationic lipids from a chemical synthesis process conducted in a specialised manufacturing facility. The proposal suggests AllVax to purchase this type of manufacturing facility from a supplier (rather than sourcing the cationic lipids from two separate suppliers). AllVax has an option to exclusively purchase the cationic lipids facility from a supplier for $4 million (included in the proposed $9 million expenditure). The option was purchased several years earlier. Vincent advises the CEO that a comparable cationic lipids manufacturing facility can be sold today for $7 million in an auction. Vincent also forecasts that at the end of the project, the value of the cationic lipids manufacturing facility will be $30 million. This option will expire in 5 months.
The proposal will require the plant to be shut down for 5 months in the 1st year, 4 months in the 2nd year, and 3 months in the 3rd year. Vincent believes the loss will not be permanent. The benefits include an increase of 6% in new output gain on old output [new output = old output x (1+6%)] and an increase of 3% in gross margin on old gross margin of 11.5% (new gross margin = old gross margin + gross margin increase). The increased outputs will necessitate additional work-in-process inventory in value to 3% of the increased cost of goods. Vincent suggests that new assets will be fully depreciated on a straightline basis over the life of the project. It is AllVaxs policy to record depreciation expenses in the same year as expenditures. Vincent also estimates that overhead costs are at 3.5% of the increased sales. Inflation is set at 0%.
Please calculate all the data from 2021 to 2035, thank you
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Accounting Principles Volume 1 And Volume 2
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak
9th Canadian Edition
1119786649, 978-1119786641
