Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Read through the information below and answer the questions that follow. Rigid Containment Solutions (RCS) produce a wide range of standard and custom bottles and

Read through the information below and answer the questions that follow.

Rigid Containment Solutions (RCS) produce a wide range of standard and custom bottles and carboys to cover a wide range of applications, sizes, and connection systems. RCS is considering adding a range of "Platinum" rigid containers, designed specifically for the storage and transport of active, high-value pharmaceutical ingredients. The manufacturing process for "Platinum" containers is significantly different to RCS's more traditional containment products and will require investment in new equipment. Because this is new technology, the expected life of the project is only three years. The following information and estimates have been collated:

RCS Platinum containers project data

Estimated annual inflation rate

Initial investmentin new machinery

440,000

Disposal value of machinery after 3 years

15,000

Annual demand for Platinum containers

8.250

Average selling price of Platinum containers

85

2%

Average unit variable production

40

6%

Fixed annual production overheads

115,000

5%

The corporate tax rate is 30% paid one year in arrears. Capital allowances are available on the initial investment in new equipment and are claimed on a straight-line basis over the life of the project. The CFO calculates RCS's real Weighted Average Cost of Capital (WACC) as 8.57%. The general rate of inflation is 5%.

a.

Made a Discounted Cash Flow analysis of the project and calculate both the Net Present Value (NPV) and Internal Rate of Return (IRR).Make a clear recommendation as to whether RCS should proceed with the new project. Set out your analysis clearly and show all workings and assumptions you make in your analysis. Work to the nearest whole and percentage.But calculate compound interest factors and discount factors to four decimal places.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: J. David Spiceland, James Sepe, Lawrence A. Tomassini

4th Edition

0072994029, 9780072994025

More Books

Students also viewed these Accounting questions

Question

1. What is the meaning of the information we are collecting?

Answered: 1 week ago

Question

3. How much information do we need to collect?

Answered: 1 week ago

Question

2. What types of information are we collecting?

Answered: 1 week ago