This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: ovens per year at full capacity. The large design costs $32.5 million to build, requires $2 million in fixed annual operating expense, and can produce 80,000 ovens per year at full capacity. Both plant designs would be expected to have a life of 10 years. GHI expects to be able to sell up to 60,000 ovens per year at a per-unit after-tax cash flow of $120. Which plant design (if any) should GHI implement? (Assume a discount rate of 12%, and keep the problem simple by ignoring depreciation, terminal cash flows, and changes in NWC.) Small: NPV=1,470,848 Large: b. Suppose further that GHI believes that there is a 50/50 chance that in 5 years Congress will pass legislation limiting the use of microwave ovens for federal government purposes. GHI believes that if this legislation is passed, they will be able to sell 80,000 ovens per year in years 6 through 10. Now which plant design (if any) should GHI implement? 3. Do Higgins, Chapter 8, #9. Answers provided in back of book. 2...
View Full Document
This note was uploaded on 03/06/2012 for the course BUS M 410 taught by Professor Brianboyer during the Fall '10 term at BYU.
- Fall '10