Reference no: EM13478611

Proposal A New Factory

A company wants to build a new factory for increased capacity. Using the net present value (NPV) method of capital budgeting, determine the proposal's appropriateness and economic viability with the following information:

• Building a new factory will increase capacity by 30%.

• The current capacity is $10 million of sales with a 5% profit margin.

• The factory costs $10 million to build.

• The new capacity will meet the company's needs for 10 years.

• The factory is worth $14 million over 10 years. Using net present value, determine the proposal's appropriateness and economic viability.

Prepare a 500-word report explaining your calculations and conclusions. Answer the following in your report:

• Explain the effect of a higher or lower cost of capital on a firm's long-term financial decisions.

• Analyze the use of capital budgeting techniques in strategic financial management.

Format your report consistent with APA guidelines.