Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000. The machine has an estimated life of 6 years. It is estimated that the machine's maintenance expenses are around $15,600 per year and a full-time worker will be employed at a wage of $150,000 per year to operate the machine. Eden expects to generate income by producing 348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year. The selling price and raw material cost for each product is $50 and $15.5 respectively. The machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance expenses remain no change for the 6 years. However, there is an annual rise of 3% for the worker's wage starting from the second year. (Assuming all payments and receipts occur at the beginning or the end of a year.) а. Prepare a table for the cash flow of the project. b. Calculate the NPV of the project cost of capital at 6%. с. Based on your calculation, suggest if this is a good investment.
Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000. The machine has an estimated life of 6 years. It is estimated that the machine's maintenance expenses are around $15,600 per year and a full-time worker will be employed at a wage of $150,000 per year to operate the machine. Eden expects to generate income by producing 348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year. The selling price and raw material cost for each product is $50 and $15.5 respectively. The machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance expenses remain no change for the 6 years. However, there is an annual rise of 3% for the worker's wage starting from the second year. (Assuming all payments and receipts occur at the beginning or the end of a year.) а. Prepare a table for the cash flow of the project. b. Calculate the NPV of the project cost of capital at 6%. с. Based on your calculation, suggest if this is a good investment.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College