Question
To make an investment, a company has borrowed lira 8,000,000 annually for 10 years with 18% annual capital cost rate compounded monthly maturity. By this
To make an investment, a company has borrowed lira 8,000,000 annually for 10 years with 18% annual capital cost rate compounded monthly maturity. By this investment, 1 000 000 units per year will be produced. The amount of production will decrease by 1% per year for the second 10 years after remaining constant for the first 10 years. The product will be sold at a price of 3 lira/unit. It is expected that annual escalation rate of the product sales price will be 16% in the first 10 years and 22% in the remaining years. 0.2 kg of raw materials will be used for one unit product. The price of the raw material is 0.8 lira/kg. The annual escalation of the raw material price for the first 10 years is 15% and the second 10 years is 25%. A total of 80 kW of electrical power will be consumed in the production system. The company will work 5100 hours per year. The electricity price is 0.8 lira/kWh. It has been estimated that the annual escalation of the electricity price will be 10% for the first 5 years, 15% for the second 5 years and 20% for the rest of the time. 10 personnel will work on the production system. The average monthly cost of a personnel is 7,000 lira and its annual escalation is 18%. A large maintenance cost will be carried out every 5 years. The maintenance cost at the fifth year is 200,000 lira and the 5-year escalation of this maintenance cost is 80%. Since annual discount rate is 20%, determine the economic viability of this investment by the annual value method
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