Evaluate the project to extend the storage facilities

Assignment Help Cost Accounting

Reference no: EM13907498

S.T. Ilton Co Ltd manufactures a special cheese, the current manufacturing cost and selling price of which is:

Selling price

200

(per 100 kg)

Variable manufacturing costs Fixed costs (based on annual

output of 2,000,000 kg)

160

180

(per 100 kg)

Profit 20 (per 100 kg)

Because of the nature of the product it is only made to order. However, it is considered that the company could extend its current sales and output of 2,000,000 kg by investing in some special storage facilities. As a result, the company would be able to sell immediately from stock an additional 1,000,000 kg of cheese each year. Because the orders would be supplied immediately, the company may be able to charge a special sales premium over the existing selling price for the additional 1,000,000 kg. The premium is difficult to estimate with any certainty, it could be as high as 30% or it could be nil. The probability distribution shown below is the marketing directo's best estimate of the possible sales premium likely to be obtained.

Selling price premium over current price
%
0
10
20
30

Probability

0.20
0.30
0.30
0.20

The new storage facilities would incur additional fixed expenses each year of £100,000, and working capital required immediately would increase by £250,000. The total cost of the equipment would be £1,500,000, with an 8 year life and a nil scrap value.

You are required to evaluate the project to extend the storage facilities using the NPV method, assuming the company's cost of capital is 20%.

Reference no: EM13907498

Questions Cloud

Human resource management : The Supreme Court has held that the selection guidelines in the federal government's Uniform Guidelines on Employee Selection Procedures also apply to performance measurement" (Noe, Hollenbeck, Gerhart, & Wright, 2011, p. 249). Locate a recent court ..

Prepare a competitive price analysis : Prepare a competitive price analysis

Human resource management : Employee development that consists of four broad categories and approaches that can be combined is: formal education, achievement, skill building, and experience. formal education, assessment, job experience, and building relationships.

If a employee is exempt and they are absent a lot, : If a employee is Exempt and they are absent a lot, does the company have the right to deduct the days worth from the employees salary?

Evaluate the project to extend the storage facilities : You are required to evaluate the project to extend the storage facilities using the NPV method, assuming the company's cost of capital is 20%.

Square and colour of the square : A player generates two random numbers. Ex: generated number is 2 & 3 the player clicks in the 2x3 square and colour of the square should change.

Sepp blatter is the world president of which body : Sepp Blatter is the world president of which body?

Franklin county pennsylvania was typical : Franklin County, Pennsylvania, was typical of much of the northern home front during the civil war in all of the following ways Except? A. confederate troops moved across its soil B. businesses prospered

Jessica porter works in both the jewelry, hosiery department : Jessica Porter works in both the jewelry department and the hosiery department of a retail store.

User Account

All Pages