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Question 4.4 (10pts) Champion Chemical Corporation is planning to expand one of its propylene manufacturing facilities. At n = 0, a piece of property costing
Question 4.4 (10pts) Champion Chemical Corporation is planning to expand one of its propylene manufacturing facilities. At n = 0, a piece of property costing $2.5 million must be purchased to build a plant, and an additional $5 million is required for construction work. At the end of the first year, the company needs to spend about $10 million on equipment and other start-up costs. Once the building becomes operational, it will generate revenue in the amount of $10 million during the first operating year (at n = 2). This will increase at the annual rate of 5% over the previous year's revenue for the following nine years (including n= 11). Afterwards, the sales revenue will stay constant. The project will remain operational for 13 years in total (until n= 14). The expected salvage value of the land at the end of the project's life would be about $4 million, the building about $2 million, and the equipment about $500,000. The annual operating and maintenance costs are estimated to be approximately 40% of the sales revenue each year. What is the IRR for this investment? If the company's MARR is 30%, determine whether the investment is a good one. (Assume that all figures represent the effect of the income tax.) A) 24.85% the project is not economically attractive B) 33.76% the project is economically attractive C) 41.02% the project is economically attractive D) Answers A, B and C are not correct
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