Considering replacement of equipment used in production

Assignment Help Financial Management

Reference no: EM131327420

Lotus Pharmaceuticals Corp. is considering the replacement of equipment used in the production of one of its drugs used to treat arthritis. Last year, Lotus produced and sold 2.66 million capsules of this drug at a price of $8.50 per capsule. Operating expenses (excluding depreciation) are 22% of dollar sales. While Lotus expects increased demand for the drug over the next five years, the 2.66 million capsules sold last year is the maximum output capacity with the existing equipment. The new equipment would increase capacity and allow Lotus to meet the expected 4% annual growth in sales of the drug for the next five years. If the old equipment is not replaced, it would continue to produce 2.66 million capsules per year for the next five years.

The new equipment would also reduce operating expenses to 20% of dollar sales for all capsules produced. The sales price for the drug is expected to increase at the expected inflation rate of 3% per year. Compute the incremental revenue, operating expenses, and gross profit before depreciation (incremental revenue minus incremental operating expense) for the project for the next five years.

Reference no: EM131327420

Questions Cloud

What explanation might there be for such a strategy : Before the merger, each of the separate newspapers was losing about $10 million per year. What forecast would you make for the merged firm's profits? Explain.

What would be total amount distributed over fifteenyear life : What would be the total amount distributed over the 15-year life of the building? Assuming that NIS's estimate of economic life was correct, what would likely be the market value of the building when the lease expired?

How much should you pay for the investment : How much should you pay for the investment?- What will be the total sum of cash you will receive over the next eight years?

Role of aggression in childhood development : Specifically, your paper should address the following: An assessment of the role of aggression in childhood development. An evaluation of environmental factors on aggression within each age range

Considering replacement of equipment used in production : Lotus Pharmaceuticals Corp. is considering the replacement of equipment used in the production of one of its drugs used to treat arthritis. Last year, Lotus produced and sold 2.66 million capsules of this drug at a price of $8.50 per capsule. Operati..

How much should he pay today for the investment : How much should he pay today for the investment? How much should he pay if the investment returns are received at the beginning of each year?

What topic in price theory is applicable to the article : I want the article you use to be relatively recent, so the article you use should be dated June 2015 or after. Be sure to acquire a printed copy of the article and turn it in with your paper. Make sure it includes the date and the source ..

How much will have to be paid by borrower : A borrower and lender agree on a $200,000 loan at 10 percent interest.- how much will have to be paid by the borrower at the end of 5 years?

Remodel a kitchen that is used for chefs competing : Kitchen Remodel (commercial) remodel a kitchen that is used for chefs competing in some televised broadcasts. Describe the company, project, resources and some of the challenges behind the project.

User Account

All Pages