Variable producio Fixed production cost 24.8 tre anufacturer would like to build

Question

Variable producio Fixed production cost 24.8 tre anufacturer would like to build a new Be 2. An eco-p ntn The Netherlands. It is estimated that an0 pla 86,000 tonnes per yea would cost 20% more than a conventional paint pl eco- t plant, Pro af calculate the capital cost for the a) Using the data overleaf calculate the capital cost (b) the Netherlands to be different from that of an id UK. Briefly discuss five factors that might cause the co 10 marks) of the plant built in identical plant buitin the What is the net annual profit required per tonne of paint for the new plant to give an average Return on Investment of 15%. (c) (5 marks) (d) Define the net present value and briefly explain why this is a move useful measure than return on investment? (6 marks) marks

Explanation / Answer

PLANT

11429/65 X 86 quantity wise = $ 15,122

A conventional plant $11,429 x 120% = $ 13,716

But location factor 1.1 x $13,716 = $ 15088

$15,088 @ exchange rate for Euros = Euros 18627

CAPITAL COST = E 18,627

b)

c)

Net annual profit required for 15% return:

$15,088 x 15% = $2263 per annum

$2263/86,000 tonnes = $-/0263 per tonne

d)

NPV is better than ROI as NPV considers the value of money which decreases over time whereas ROI just states the value as at now

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