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- Download: http://solutionzip.com/downloads/superior-manufacturing-solution/
- Superior Manufacturing is thinking of launching a new product. The company
- expects to sell $950,000 of the new product in the first year and $1,500,000
- each year thereafter. Direct costs including labor and materials will be
- 55% of sales. Indirect incremental costs are estimated at $80,000 a year.
- The project requires a new plant that will cost a total of $1,000,000, which
- will be depreciated straight line over the next five years. The new line
- will also require an additional net investment in inventory and receivables
- in the amount of $200,000. Assume there is no need for additional
- investment in building and land for the project. The firm’s marginal tax
- rate is 35%, and its cost of capital is 10%. Based on this information you
- are to complete the following tasks.
- 1) Prepare a statement showing the incremental cash flows for this project over
- an 8-year period.
- 2) Calculate the Payback Period (P/B) and the NPV for the project.
- 3) Based on your answer for question 2, do you think the project should be
- accepted? Why? Assume Superior has a P/B (payback) policy of not accepting
- projects with life of over three years.
- 4) If the project required additional investment in land and building, how
- would this affect your decision? Explain
- Download: http://solutionzip.com/downloads/superior-manufacturing-solution/
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