1. The Zuber Bottle Company manufactures bottles for beer producers.Its current production capacity is 20 million bottles per year, which matches its current sales.The company, though, expects sales to increase to 22 million next year.Further, a market research company they hired has estimated that with an annual $1 million advertising and promotion campaign conducted over the next three years( that could be launchedone year from the present), their sales could reach 24million next year, 26 million the year after, and then 29 million per year for the foreseeable future.

To meet potential demand, Zuber is considering a capital expansion project.The expansion project consists of the following:

• $4,000,000 equipment cost
• Zero capitalized installation cost
• $500,000 expensed cost
• Capitalized expenses would be depreciated over 10 years to a book value of zero
• $100,000 change in working capital
• The facility is expected to produce for 10 years
• Salvage value minus removal cost equal zero
• Price of Zuber bottle$0.612/bottle
• AVC of Zuber bottle is $0.387/bottle
• Operating profit margin = m = P-AVC = $.225/bottle
• Tax Rate = 0.4
• Cost of Capital = 0.12
• Questions:
• Using NPV approach, should Zuber accept the capacity expansion project?