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The production line produces a product which currently has annual sales of $1,000,000 and has a contribution to the business beyound ingredients of...
The production line produces a product which currently has annual sales of $1,000,000 and has a contribution to the business beyound ingredients of $500,00.
Your line is currently operating at full 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%. - so ass capability to produce $300,000 more per year
and will eliminate 3 positions of manual labor when fully operational the second year
A manual position of labor costs $30,000 per year with benefits
A 6 month supply of ingredients is kept at all times.
It is expected that the learning curve will result in zero increased capacity in year 1 but the full 30% in year 2.
The equipment will costs $600,000.
Engineering and installation will cost $100,000.
Sales will grow at a rate so all production can be sold.
Advertising and promotion to get that growth will cost $50,000 per year.
The company has a WACC of 15% but uses a hurdle rate of 18% for projects of this risk type.
Outline the cash flows in the chart below - please note some cash flows are positive and some are negative - you will need to make sure they sum appropriately.
Evaluate the investment with payback, IRR, and NPV.
Year
CASH FLOW CALCULATIONS
