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Proposal A: New Factory
A company wants to build a new factory for increased capacity. Using the net present value (NPV) method of capital budgeting, determine the proposal's appropriateness and economic viability with the following information:
• Building a new factory will increase capacity by 30%.• The current capacity is $10 million of sales with a 5% profit margin.• The factory costs $10 million to build.• The new capacity will meet the company's needs for 10 years.• The factory is worth $14 million over 10 years.
****I do not need the entire paper, just the calculations for the paper and short explaination of calculations so that I can explain in the paper. PLEASE do not give me answers below; has already been used, but I do need the same formatting. Thanks!!!!
Year
Cash Flow
PV Factor
Present Value
0
(10,000,000)
1.0000
1
150,000
0.9091
136,364
2
0.8264
123,967
3
0.7513
112,697
4
0.6830
102,452
5
0.6209
93,138
6
0.5645
84,671
7
0.5132
76,974
8
0.4665
69,976
9
0.4241
63,615
10
14,150,000
0.3855
5,455,438
Net present value
(3,680,709)
0.9434
141,509
0.8900
133,499
0.8396
125,943
0.7921
118,814
0.7473
112,089
0.7050
105,744
0.6651
99,759
0.6274
94,112
0.5919
88,785
0.5584
7,901,286
(1,078,460)
In the event of a 12% cost of capital, the NPV has a negative of $4,644,841 which is much lower than the net present value at a weighted cost of capital of 6% and 10%.
10,000,000)
0.8929
133,929
0.7972
119,579
0.7118
106,767
0.6355
95,328
0.5674
85,114
0.5066
75,995
0.4523
67,852
0.4039
60,582
0.3606
54,092
0.3220
4,555,921
(4,644,841)
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