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Evaluate the proposal

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A software company buys blank DVDs at $5.00 per DVD and currently uses 2 million per year. The manager believes that it may be cheaper to make the DVDs rather than buy them. Direct production costs (labour, materials, fuel) are estimated at $2.25 per DVD. The equipment needed would cost $3.5 million. The equipment should last for 12 years, provided it is overhauled every 4 years at a cost of $250000 each time. The operation will require additional current assets of $500000. The company's required rate of return is 10 per cent.

A. Evaluate the proposal.

B. If the manager is uncertain about the reliability of some of the cashflow data, discuss the techniques that could be used to help address this uncertainty.

Reference no: EM132675969

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