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Should Seals produce the cold rooms?
Seals Co.taxable company with overseas shareholders, has recently completed a $400,000, 2 year marketing study. Based on the results, Seals has estimated that 10,000 of its new cold rooms could be sold annually over the next eight years at a price of $9,615 each. Subcontractors would install the cold rooms at a cost per installation of $7,400. Fixed costs to be incurred would be $12 million per year.
Start up costs include $40 million to build production facilities and $2.4 million in land. The $40 million facility will be depreciated prime cost to zero over the project's life. At the end of the project's life the facilities (including the land) will be sold for an estimated $8.4 million. The value of the land is not expected to change.
Finally, at start-up working capital would need to be increased by $1.4 million. Seals is an ongoing profitable business and pays taxes at a 30% rate in the year of income on all income and gains. Seals use a 10% discount rate on projects such as this one.
Should Seals produce the cold rooms?
Replies are closed for this discussion.
Replies to This Discussion
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Permalink Reply by George A.Y. on -
well i agree with this
the taxable anount should be 6*0.3mm
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Permalink Reply by Daniel Irudayaraj on -
Seals should go ahead with the investment.
Annual Revenue $96,150,000
Total Expenses $86,000,000
Depreciation $4,250,000
Operating Profit $5,900,000
Tax $1,770,000
Net Profit $4,130,000
Cash Flow $8,380,000
NPV of ivestment $6,225,343.53
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Permalink Reply by Hitanshu Agrawal on -
Yes. NPV: USD 3.4 Mln. Pls see attached.
- Attachments:
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seals.xls, 20 KB
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Permalink Reply by Peter Quigley on -
Becky
Are you able to post a definitive answer to this please? By my reckoning we have NPV answers corresponding to: 3.4m; 5.1m; 6.2m; 9.2m; 10.7m; and 0.45m?!
Thanks in advance
Peter
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