Draw a cash flow diagram to show all the detailed cash flow

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Reference no: EM131916110

An 1C (integrated-circuit) fabrication company is considering to build a new production plant to expand their business.

For investment estimation, land costs $300,000, building costs $500,000, and the equipment costs $250,000.

It is expected that the new production plant will yield an annual revenue of $700,000 over its 12 years of useful life and after that, land can be sold for $300,000, building for $300,000, and equipment for $50,000.

The annual out-of-pocket expenses for labor, materials, and all other relevant items are estimated to be $475,000 in total.

The company requires a minimum return rate of 13% on any projects of comparable risk.

(a) Draw a cash flow diagram to show all the detailed cash flow activities of the new production plant.

(b) Use present-worth (PW) method to evaluate if the new production plant should be built.

(d) above by using annual-worth (AW) method. Does the decision change?

Reference no: EM131916110

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