1 15 pts The manufacturing facility where you work wants to

1. (15 pts) The manufacturing facility where you work wants to build a duplicate assembly line in an old warehouse next door to the current facility. The increased sales generated by the additional line are expected to last for 10 years once they are operational. However, production will not begin until year 2. New sales are expected to be $1.5 Million in years 2 and 3, and $2.5 Million each year after through year 11. Operating and maintenance expenses to operate the line are expected to be $1.1 Million each year after the line begins production. At the end of the 11th year, you can salvage the equipment and sell the building for $3 Million. It will cost $4.5 Million to purchase the building initially in year 0, and $3.5 Million in year 1 to retrofit it to accommodate your production needs before production begins in year 2. Your firm\'s MARR: 12%. Use the Present Worth Criterion to determine if you should proceed with this project?

Solution

Year Cash flows PVF @ 12% Present Values 0 -4500000 1 -4500000 1 -3500000 0.892857 -3125000 2 400000 0.797194 318877.6 3 400000 0.71178 284712.1 4 1400000 0.635518 889725.3 5 1400000 0.567427 794397.6 6 1400000 0.506631 709283.6 7 1400000 0.452349 633288.9 8 1400000 0.403883 565436.5 9 1400000 0.36061 504854 10 1400000 0.321973 450762.5 11 4400000 0.287476 1264895 Present worth -1208767 Hence, the project shall not be accepted