Hawke Skateboards is considering building a new plant. Bob Skerritt, the company’s marketing manager, is an enthusiastic
Posted: Sun Jun 05, 2022 7:18 pm
Hawke Skateboards is considering building a new plant. Bob
Skerritt, the company’s marketing manager, is an enthusiastic
supporter of the new plant. Lucy Liu, the company’s chief financial
officer, is not so sure that the plant is a good idea. Currently,
the company purchases its skateboards from foreign manufacturers.
The following figures were estimated regarding the construction of
a new plant.
Bob Skerritt believes that these figures understate the true
potential value of the plant. He suggests that by manufacturing its
own skateboards the company will benefit from a “buy American”
patriotism that he believes is common among skateboarders. He also
notes that the firm has had numerous quality problems with the
skateboards manufactured by its suppliers. He suggests that the
inconsistent quality has resulted in lost sales, increased warranty
claims, and some costly lawsuits. Overall, he believes sales will
be $188,000 higher than projected above, and that the savings
from lower warranty costs and legal costs will be $56,000 per
year. He also believes that the project is not as risky as assumed
above, and that a 9% discount rate is more reasonable.
Compute the net present value of the project based on the
original projections. (If the net present value is
negative, use either a negative sign preceding the
number e.g. -45 or
parentheses e.g. (45). Round factor values to 5
decimal places, e.g. 1.25124 and final answer to 0 decimal places,
e.g. 5,275.)
Skerritt, the company’s marketing manager, is an enthusiastic
supporter of the new plant. Lucy Liu, the company’s chief financial
officer, is not so sure that the plant is a good idea. Currently,
the company purchases its skateboards from foreign manufacturers.
The following figures were estimated regarding the construction of
a new plant.
Bob Skerritt believes that these figures understate the true
potential value of the plant. He suggests that by manufacturing its
own skateboards the company will benefit from a “buy American”
patriotism that he believes is common among skateboarders. He also
notes that the firm has had numerous quality problems with the
skateboards manufactured by its suppliers. He suggests that the
inconsistent quality has resulted in lost sales, increased warranty
claims, and some costly lawsuits. Overall, he believes sales will
be $188,000 higher than projected above, and that the savings
from lower warranty costs and legal costs will be $56,000 per
year. He also believes that the project is not as risky as assumed
above, and that a 9% discount rate is more reasonable.
Compute the net present value of the project based on the
original projections. (If the net present value is
negative, use either a negative sign preceding the
number e.g. -45 or
parentheses e.g. (45). Round factor values to 5
decimal places, e.g. 1.25124 and final answer to 0 decimal places,
e.g. 5,275.)