Question
The bicycle manufacturer has another opportunity presented to expand their current factory space to increase production and ultimately be able to reach new markets
The bicycle manufacturer has another opportunity presented to expand their current factory space to increase production and ultimately be able to reach new markets with their expanded manufacturing capacity. The company has determined the following information and assumptions for this new expansion idea: 1) 2) The capital investment for this project will cost the company $300,000. Depreciation will be calculated over a 6 year life with no salvage value. The projected annual net income for each of the six years are as follows: Year 1: 9,000 Year 2: 10,000 Year 3: 14,000 Year 4: 18,000 Year 5: 25,000 Year 6: 40,000 Total 116,000 Instructions: Using the template below, a) compute the annual rate of return. b) c) prepare a table of the net annual cash flow and cumulative net cash flow. compute the payback period. d) compute the NPV using the determined 11% discount rate. e) Should the proposable be accepted using this discount rate? compare the results from Project 1 to determine which project is more appealing.
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