Question
Kimin Brewery Limited, founded in 1928, is an integrated beverage company, and sells one of the world's most popular beer. Kimin also handles domestic distribution
Kimin Brewery Limited, founded in 1928, is an integrated beverage company, and sells one of the world's most popular beer. Kimin also handles domestic distribution for several foreign brands, and it also owns stakes in several other breweries. The company now applies its own fermentation technology to areas such as plant genetics, pharmaceuticals and bioengineering. Kimin Brewery is currently appraising the proposal to retool one of their manufacturing plant site for something the world is in need of; industrial quantities of hand gel and sanitizers. The project feasibility committee has collated forecasted investments, financing, cash flows and other information for this project.
a Machineries and assembly facilities would have to be acquired and installed. These initial investments in capital assets are estimated to cost $300 million. An additional set-up cost of $20 million is required to ensure compatibility of the production system with its fermentation technology. These would have to be fully paid before commencement of production.
b. The newly acquired assets are expected to have a 12-years useful life, till the patent for its fermentation technology ends. The scrap value at the end of asset's life is estimated at $30 million. Depreciation on the new assets will be at cost over 12 years using straight line method. c Annual sales in over the next 12 years are projected to be as follows:
Year Annual sales ('million $) 1 to 4 150 5 to 8 130 9 to 12 100Year Fixed Operating Expenses ('million $) 1 to 4 60 5 to 8 70 9 to 12 80Step by Step Solution
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