Reference no: EM132968031

Problem 1: You are an analyst for a pipe manufacturing corporation that is considering a new project which involves fabricating some custom pipe for a single customer. The project will take advantage of excess capacity in an existing plant. The plant has the capacity to produce 50,000 units of 18-inch pipe, but only 25,000 are being produced currently. Sales of 18-inch pipe are expected to increase by 10% a year. You want to use some of the remaining capacity to manufacture 20,000 units of custom 19.5-inch pipe for the next ten years (which will use up 40% of the total capacity), your customer will purchase this amount for the next ten years (no growth). An average unit of 18-inch pipe sells for $100 and costs $40 to make. The tax rate for the corporation is 40% and the discount rate is 10%. Is there an opportunity cost involved for producing the custom pipe? If so, how much is it?