BUS 530 Sample Case

BUS 530 Sample Case - University of La Verne College of...

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1 University of La Verne College of Business & Public Management BUS 530 Financial Management Sample Case The La Verne Company is considering adding a new line to its product mix, a capital budgeting analysis is required. The production line would be set up in unused space in the company’s main manufacturing plant. The machinery’s invoice price is $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment in the production line. The machinery has an economic life of 4 years, La Verne uses straight line depreciation, and it is expected to have a salvage value of $25,000 after 4 years of use. The new line would generate sales of 1,250 units per year for 4 years at a cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12%
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This note was uploaded on 02/27/2012 for the course BUS 510 taught by Professor Mehdi during the Spring '11 term at University of La Verne.

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