Determine whether sodaco should build the plant

Assignment Help Financial Management

Reference no: EM131063176

Sodaco is considering producing a new product: Chocovan soda. Sodaco estimates that the annual demand for Chocovan, D(in thousands of cases), has the following mass function: P(D 30) .30, P(D 50) .40, P(D 80) .30. Each case of Chocovan sells for $5 and incurs a variable cost of $3. It costs $800,0 to build a plant to produce Chocovan. Assume that if $1 is received every year (forever), this is equivalent to receiving $10 at the present time. Considering the reward for each action and state of the world to be in terms of net present value, use each decision criterion of this section to determine whether Sodaco should build the plant.

Reference no: EM131063176

Questions Cloud

What is the NPV of the oven : A company is evaluating a continuous baking oven. New oven would cost $685,000, including cost of equipment, shipping and installation. No increase in capcity with new oven, however operating expenses would be reduced by $105,000. What is the NPV of ..

What is the NPV of the packing machine : A project being considered is a semiautomated packing until that would cost $390,000 including installation. This project would use the 7 year MACRS schedule with no residual value. Wrapping machine was purcashed four years ago for $90,000 the wrappe..

Find accumulated value of this annuity at end of fifty years : Serena receives a fifty-year annuity-due that has payments that start at $1,000 and increase by 3% per year through the twenty-fourth payment, then stay level at $2,000. Find the accumulated value of this annuity at the end of fifty years if the annu..

Equipment that will be added to an ongoing asset pool : HFX Ltd. has the opportunity to undertake the following project: The project requires an immediate $1,000,000 investment in equipment that will be added to an ongoing asset pool with a 20% CCA rate. The market value of the equipment then is expected ..

Determine whether sodaco should build the plant : Sodaco is considering producing a new product: Chocovan soda. Sodaco estimates that the annual demand for Chocovan, D(in thousands of cases), has the following mass function: P(D 30) .30, P(D 50) .40, P(D 80) .30. Considering the reward for each acti..

What is the yield to maturity on these bonds : Grummon Corporation has issued zero-coupon bonds with five-year maturity. (assume $100 face value bond) Investors believe there is a 25% chance that Grummon will default on these bonds. What will be the price of these bonds? what is the yield to matu..

Calculate the average monthly holding-period return : Search the internet to find the monthly stock price in 2015 for the S&P 500, Wal-Mart and Target. Put a table together with information and also state your source of information (URL used). Then calculate the average monthly holding-period returns an..

Depreciation schedule for machine is straight-line : Niko has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of five years. The depreciation schedule for the machine is straight-line with no salvage value. Assume that the corporate tax rate is 3..

Flotation costs can increase the cost of preferred stock : A company's target capital structure affects its weighted average cost of capital. Weighted average cost of capital calculations should be based on the after-tax-costs of all the individual capital components. If a company's tax rate increases, then,..

User Account

All Pages