Question 5. Amanda has instructed Han to disregard the value of the land that the new plant will require.

LSUS corporation already owns it,and a practical matter,it will simply go unused indefinitely.

she has asked Han to discuss this issue in his report.

Since LSUS corporation is producing at full capacity. Amands has decided to have Han examine the feasibility of a new manufacturing plant. This etpunsion would represent a major capital outlay for the company. A preliminary analysis of the projact has been conducted at a cost of $1.6 million. This analysis determined that the new plant will recuire am inmediate outlay of 554 millive and an additional ouflay of $31 million in one year. The conpuny has received a special tax dispensation that will allow the building and equipment to be depreciated on a 20-year MACRS schedule. Because of the time necessary to build the new plant, no kales will be possible for the next year. Two years from now, the company will have purtial-year wales of 517 million. Sales in the following focir years will be $28 mittion, $37 million. $40 millise, and $43 million. Because the new plant will be more efficieat than L.SUS corpocation's carreat manufacturing facilities, variable costs are expected to be 65 percent of sales, and fived conts will be 32.4 million per year. The new plant will also require net working capital ameunting to 8 pereent of sales for the next year. Han realizes that sales from the new plant will continue into the iadefinite fiture. Because of this, he believes the cash flows after Year 5 will coetinue to grew at 2.5 percent indefinitely. The conopany's tax rate is 40 percent and the required return is 12 percent. 1) Amanda is not sare about the capital budgeting technique and want like Han to elabocate clearly what are and are not important elements to engage the capital bodgeting decision for the L.SUS corporation. 2) Amanda is recommended to use profitabilsty indect, NPV, and IRR, she wants Han to examine extensively the benefits and draw backs of each approach. 3) After the examine of three approaches, Amanda would hike Han to analyze the financial viability of the new plant and calculate the peofitability iader, NPV, and IRR. 4) After the empirical results, Han would like to provide the recominendatice to Amanda and Board of directors, what is Han's recoenonendation? Amanda also wants Han to 4 provide a sensitivity analysis and change any one of elements documsented befoee and see what happens? For example, increase or decrease growth rate and at what level the firm can break even when NPV=0. 5) Amanda has instructed Han to disegard the valoe of the land that new plant will require. LSUS Corporation already owns it, and a practical matter, it will sinaply go unused indefinitely, Sbe has asked Han to discuss this issue in his report. Since LSUS corporation is producing at full capacity. Amands has decided to have Han examine the feasibility of a new manufacturing plant. This etpunsion would represent a major capital outlay for the company. A preliminary analysis of the projact has been conducted at a cost of $1.6 million. This analysis determined that the new plant will recuire am inmediate outlay of 554 millive and an additional ouflay of $31 million in one year. The conpuny has received a special tax dispensation that will allow the building and equipment to be depreciated on a 20-year MACRS schedule. Because of the time necessary to build the new plant, no kales will be possible for the next year. Two years from now, the company will have purtial-year wales of 517 million. Sales in the following focir years will be $28 mittion, $37 million. $40 millise, and $43 million. Because the new plant will be more efficieat than L.SUS corpocation's carreat manufacturing facilities, variable costs are expected to be 65 percent of sales, and fived conts will be 32.4 million per year. The new plant will also require net working capital ameunting to 8 pereent of sales for the next year. Han realizes that sales from the new plant will continue into the iadefinite fiture. Because of this, he believes the cash flows after Year 5 will coetinue to grew at 2.5 percent indefinitely. The conopany's tax rate is 40 percent and the required return is 12 percent. 1) Amanda is not sare about the capital budgeting technique and want like Han to elabocate clearly what are and are not important elements to engage the capital bodgeting decision for the L.SUS corporation. 2) Amanda is recommended to use profitabilsty indect, NPV, and IRR, she wants Han to examine extensively the benefits and draw backs of each approach. 3) After the examine of three approaches, Amanda would hike Han to analyze the financial viability of the new plant and calculate the peofitability iader, NPV, and IRR. 4) After the empirical results, Han would like to provide the recominendatice to Amanda and Board of directors, what is Han's recoenonendation? Amanda also wants Han to 4 provide a sensitivity analysis and change any one of elements documsented befoee and see what happens? For example, increase or decrease growth rate and at what level the firm can break even when NPV=0. 5) Amanda has instructed Han to disegard the valoe of the land that new plant will require. LSUS Corporation already owns it, and a practical matter, it will sinaply go unused indefinitely, Sbe has asked Han to discuss this issue in his report