A manufacturing company is considering a capacity expansion investment at the cost of $258,388 with no salvage value. The expans
ion would enable the company to produce up to 26,241 parts per year and the useful life of the additional capacity is seven years. Each part would generate $2.43 net profit and annual operating and maintenance costs are estimated at $28,599 per year. The market demand for the parts is unlimited, all parts produced will be sold. The MARR of the firm is 10%. The minimum annual production rate to make this investment justifiable is:
1 answer:
Answer:
33,610.42 units
Explanation:
For computing the minimum annual production rate first we have to determine the annual worth by using the PMT formula which is shown below:
Given that
Present value = $258,388
Interest rate = 10%
NPER = 7 years
Future value = $0
The formula is shown below:
= PMT(RATER;NPER;-PV;FV;type)
The present values comes in a negative
After solving this, the annual worth is $53,074.32
And, the annual operating maintenance cost is $28,599
So, the revenue should be
= $53,074.32 + $28,599
= $81,673.32
Now the minimum annual production rate is
= $81,673.32 ÷ $2.43
= 33,610.42 units
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