Determine how large a Wozac plant to build

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Question - Assume the demand for the drug Woza during the current year is 50,000, and assume demand will grow at 5% per year. If we build a plant that can produce x units of Wozac per year, it will cost us $16x in the first year. Each unit of Wozac is sold for $3. Each unit of Wozac produced incurs a variable production cost of $0.20. It costs $0.40 per year to operate a unit of capacity. Determine how large a Wozac plant to build to maximize the NPV of the profit over the next ten years. Assume the investment of the capacity is made at the end of year 1. Assume there is no tax, no depreciation (therefore, the building cost needs to be deducted in the first year), the discount rate is 10%.

Reference no: EM132963389

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