Question 2: JBS Plc. is a car manufacturer which is considering to introduce manufacturing of a new electric car to replace one of its old production lines. It has undergone a market research last year that costed $120K which showed that there is an increase in demand for this type of a car. The new production line will cost $3M and is expected to have a salvage value in 6 years for $750K. The existing production line was bought 2 years ago for $1.2M, and can be sold today at a market value of $500K. If not sold now this old machinery is expected to have a salvage value of $100K in 6 years. The project is expected to generate sales in year 1 for $4.2M, and thereafter sales are forecasted to grow by 6% a year for the coming 6 years. This is as opposed to the current production line which was expected to generate $3.5M of sales next year and grows by 2% for the coming 6 years. Manufacturing costs are the same under both production lines. Finally, the new project requires an initial investment in working capital of $400k. Thereafter, working capital is forecasted to grow at the same growth rate of revenues of 6%. CCA rate is 20%, tax rate is 44% & discount rate is 15%. Should JBS Plc proceed with replacing the old production line with the new production line for manufacturing electric car. Question 2: JBS Plc. is a car manufacturer which is considering to introduce manufacturing of a new electric car to replace one of its old production lines. It has undergone a market research last year that costed $120K which showed that there is an increase in demand for this type of a car. The new production line will cost $3M and is expected to have a salvage value in 6 years for $750K. The existing production line was bought 2 years ago for $1.2M, and can be sold today at a market value of $500K. If not sold now this old machinery is expected to have a salvage value of $100K in 6 years. The project is expected to generate sales in year 1 for $4.2M, and thereafter sales are forecasted to grow by 6% a year for the coming 6 years. This is as opposed to the current production line which was expected to generate $3.5M of sales next year and grows by 2% for the coming 6 years. Manufacturing costs are the same under both production lines. Finally, the new project requires an initial investment in working capital of $400k. Thereafter, working capital is forecasted to grow at the same growth rate of revenues of 6%. CCA rate is 20%, tax rate is 44% & discount rate is 15%. Should JBS Plc proceed with replacing the old production line with the new production line for manufacturing electric car
