Company wants to build new factory for increased capacity

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Reference no: EM131508762

Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation.

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.

Reference no: EM131508762

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