U.S. Steel is considering a plant expansion to produce austenitic, precipitation
ID: 1136598 • Letter: U
Question
U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $15 million now and another $10 million 1 year from now. If total operating costs will be $1.8 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 10 to recover its investment plus a return of 24% per year? The company must make $ million annually in years 1 through 10 to recover its investment plus a return of 24% per year.Explanation / Answer
In order to recover the cost, the annual income should be equal to annual cost that it bears
EUAC = (15,000,000 + 10,000,000(P/F, 24%, 1) + 1,800,000(P/A, 24%, 10))
= (15,000,000 + 10,000,000*(1 + 24%)^(-1) + 1,800,000*3.6818563)*0.27160213
= $8,064,372
Hence company must make 8.064 million annually.
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