II. Product X-21, a food preservative, is manufactured in a facility of a multinational company with a nominal capacity of 180,000 kilograms per year. The ultimate capacity of the facility can be increased, at some loss in cost efficiency, by process modifications and the use of extensive amounts of overtime, to 195,000 per year. With the present marketing strategy, sales are expected to level of at about 190,000 kilograms per year in 2009 and to remain at that volume. Therefore, the existing capacity will be sufficient under the present marketing strategy. However, an opportunity has become available to enter a new market for an X-21 product modified slightly to give it better warm weather stability. A German firm has a trade secret on the modifying process but is willing to enter into a nondisclosure agreement for a one-time fee of $75,000. A proposal has been submitted to management to expand the existing X-21 plant to permit the company to enter this new market. In the following page is a spreadsheet of the different types of projected cash flows. Given a MARR (Minimum Attractive Rate of Return) of 20%, will you be pushing through with the project or not? End of Year Capitalizable Project Expenditures Expenditures Related Projects Net Change in Prepaid Know- Chargeable to and Work How Operations Working Capital Orders Before-Tax Cash Flows During Commercial Operation Introductors Costs 2009 2010 $(40,000.00) (390,000.00) $(48,600.00) $(75,000.00) $(8,500.00) $(36.600.00) (36,600.00) (12,200.00) $(120,000.00) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 $(740,400.00) (9,800.00) 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 (120,000.00) 2025 85.400.00 II. Product X-21, a food preservative, is manufactured in a facility of a multinational company with a nominal capacity of 180,000 kilograms per year. The ultimate capacity of the facility can be increased, at some loss in cost efficiency, by process modifications and the use of extensive amounts of overtime, to 195,000 per year. With the present marketing strategy, sales are expected to level of at about 190,000 kilograms per year in 2009 and to remain at that volume. Therefore, the existing capacity will be sufficient under the present marketing strategy. However, an opportunity has become available to enter a new market for an X-21 product modified slightly to give it better warm weather stability. A German firm has a trade secret on the modifying process but is willing to enter into a nondisclosure agreement for a one-time fee of $75,000. A proposal has been submitted to management to expand the existing X-21 plant to permit the company to enter this new market. In the following page is a spreadsheet of the different types of projected cash flows. Given a MARR (Minimum Attractive Rate of Return) of 20%, will you be pushing through with the project or not? End of Year Capitalizable Project Expenditures Expenditures Related Projects Net Change in Prepaid Know- Chargeable to and Work How Operations Working Capital Orders Before-Tax Cash Flows During Commercial Operation Introductors Costs 2009 2010 $(40,000.00) (390,000.00) $(48,600.00) $(75,000.00) $(8,500.00) $(36.600.00) (36,600.00) (12,200.00) $(120,000.00) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 $(740,400.00) (9,800.00) 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 385,800.00 (120,000.00) 2025 85.400.00
