Question
There is a proposal to procure a machine that will manufacture new kitchenware. It will cost OMR 1,550,000, with 70% to be paid initially and
There is a proposal to procure a machine that will manufacture new kitchenware. It will cost OMR 1,550,000, with 70% to be paid initially and the remainder to be paid one year later. The product is expected to sell for OMR 100 with 5% per year. Meanwhile, raw materials, direct labor and factory overheads costing OMR 30, OMR 30 and OMR 10, respectively are expected to increase by 3% per year. The increase in working capital needed is 1% of expected annual sales. Annual fixed cost is OMR 300,000. The machine will be worthless after five (5) years. Total production and expected sales in units for the first year are expected to be 30,500, but production and sales in the second and subsequent years will be 35,500 units. The company disregards tax and depreciation in the calculation of present value. The nominal cost of capital is 11%.
Calculation of Net present value of the new machine?
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