Operations Management - Applications Projects

Proposal A: New Factory A company wants to build a new factory for increased capacity. Using the net present

Proposal A: New Factory
A company wants to build a new factory for increased capacity. Using the net present value (NPV) method of capital budgeting, determine the proposal’s appropriateness and economic viability with the following information:
 Building a new factory will increase capacity by 30%.
 The current capacity is $10 million of sales with a 5% profit margin.
 The factory costs $10 million to build.
 The new capacity will meet the company’s needs for 10 years.
 The factory is worth $14 million over 10 years.
 Assume spending occurs on the first day of each year and benefits or savings occurs on the last day.
 Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation.
Prepare a 500-word report explaining your calculations and conclusions. Show all work. Answer the following in your report:
 Explain the effect of a higher or lower cost of capital on a firm’s long-term financial decisions.
 Analyze the use of capital budgeting techniques in strategic financial management.

Price: $9.06

Solution: The downloadable solution consists of 4 pages, 506 words.
Deliverable: Word Document