A manufacturing company is considering a capacity expansion investment at the co
ID: 1095589 • Letter: A
Question
A manufacturing company is considering a capacity expansion investment at the cost of $255,943 with no salvage value. The expansion would enable the company to produce up to 32,698 parts per year and the useful life of the additional capacity is seven years. Each part would generate $1.45 net profit and annual operating and maintenance costs are estimated at $29,769 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:
Enter your answer in this form: 12345.67
Explanation / Answer
Investment
$255,943
29,769
29,769
29,769
29,769
29,769
29,769
29,769
Total = $464,326
Total cost per unit = $14.20
If MARR is 10% then price per unit should be $ 15.62
Profit = Total revenue
Investment
$255,943
29,769
29,769
29,769
29,769
29,769
29,769
29,769
Total = $464,326
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