What is npv of total cost with current manufacturing setup

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Reference no: EM133433943

Assignment:

Southern specialty products has production facilities in Mississippi and Japan. Both facilities have capacities of 2 million units each per year. The cost of production and distribution of party supplies from Mississippi is $0.25/unit. The cost of production and distribution from Japan is 25 Yen/unit. (Assume that the current exchange rate is $1=110 Yen). Over the next two years the exchange rate is expected to strengthen by 7.5% with a 0.5 probability and weaken by 7.5% with a probability of 0.5.

The expected demand this year is about 3.5 million units. Over the next two years the demand is expected to increase by 10% with a probability of 0.5 and decrease by 8% with a probability of 0.5. If demand is more than the capacity of the two plants then the remaining supplies are acquired from a competitor for $0.8/unit.

What is the NPV of total cost with the current manufacturing setup?
The company wants to increase the capacity of the Mississippi plant by 500,000 units at a fixed cost of $100,000. The fixed cost will be incurred this year. What is the NPV of the revised setup?
Should They do it? Assume that the company uses a 10% discount rate.

Reference no: EM133433943

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