Global Wood Transport Co. (GWT) is considering investing on a new machinery aiming to improve the efficiency of its prod
Posted: Tue Apr 26, 2022 10:28 am
Global Wood Transport Co. (GWT) is
considering investing on a new machinery aiming to improve the
efficiency of its production process and the quality of its
products. The marketing department claims that the higher quality
of the product will allow the sale of each product unit at a higher
price. This positive difference with the old price (the old price
being 6€/unit) is estimated at 0,50€. Marketing department
estimates an increase of sales, from 100,000 to 150,000 units for
each year. The new investment will require 200,000€ while the
yearly operating and maintenance expenses are estimated at 10,000€.
Selling, general and administrative expenses will not change
compared to the old situation and they will be at the level of €5
per unit. The new investment will require an extra working capital
of 30.000€ in the beginning of the investment project and it will
be recovered at the end of the useful life of the project, which is
estimated at 8 years. The company uses the straight line to
depreciate its assets. Tax rate is 22% while the cost of capital of
GWT is 8%.
Using the above information, you are
required to do the following:
considering investing on a new machinery aiming to improve the
efficiency of its production process and the quality of its
products. The marketing department claims that the higher quality
of the product will allow the sale of each product unit at a higher
price. This positive difference with the old price (the old price
being 6€/unit) is estimated at 0,50€. Marketing department
estimates an increase of sales, from 100,000 to 150,000 units for
each year. The new investment will require 200,000€ while the
yearly operating and maintenance expenses are estimated at 10,000€.
Selling, general and administrative expenses will not change
compared to the old situation and they will be at the level of €5
per unit. The new investment will require an extra working capital
of 30.000€ in the beginning of the investment project and it will
be recovered at the end of the useful life of the project, which is
estimated at 8 years. The company uses the straight line to
depreciate its assets. Tax rate is 22% while the cost of capital of
GWT is 8%.
Using the above information, you are
required to do the following: