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Your line is currently operating at full standard capacity You are putting in new equipment which will make the line more efficient and last for
Your line is currently operating at full standard capacity | |||||||||||||||
You are putting in new equipment which will make the line more efficient and last for 10 years | |||||||||||||||
The equipment will increase the capacity of the line by 30%, or $300,000 in additional sales. | |||||||||||||||
and will eliminate 3 positions of manual labor when fully operational the second year | |||||||||||||||
The line produces a product which has annual sales of $1,000,000 and has a contribution to the business beyound ingredients of $500,000 | |||||||||||||||
A manual position of labor costs $30,000 per year with benefits | |||||||||||||||
A 6 month supply of ingredients is kept at all times | |||||||||||||||
The equipment will costs $600,000 | |||||||||||||||
engineering and installation will cost $100,000 | |||||||||||||||
With the new capacity sales will grow at $100,000 per year until the new capacity is fully utilized. | |||||||||||||||
The company has a WACC of 15% but uses a hurdle rate of 18% for projects of this risk type. | |||||||||||||||
Year | |||||||||||||||
CASH FLOW CALCULATIONS | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||
Capacity of New Line | |||||||||||||||
Incremental sales growth | |||||||||||||||
additional ingredients | |||||||||||||||
additional advertising | |||||||||||||||
savings from eliminating manual positions | |||||||||||||||
increase in income before taxes | |||||||||||||||
Depreciation | |||||||||||||||
Estimated taxes at 35% | |||||||||||||||
Increase in income after taxes | |||||||||||||||
additional inventory | |||||||||||||||
cost of equipment | |||||||||||||||
cost of installation | |||||||||||||||
NET CASH FLOW | 0 | - | - | - | - | - | - | - | - | - | - | ||||
Payback | - | - | - | - | - | - | - | ||||||||
IRR | #NUM! | ||||||||||||||
NPV | $0.00 |
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