Reference no: EM131073545

Proposal A: New Factory

A company wants to build a new factory for increased capacity. Using the net present value (NPV) method of capital budgeting, determine the proposal's appropriateness and economic viability with the following information:

• Building a new factory will increase capacity by 30%.
• The current capacity is $10 million of sales with a 5% profit margin.
• The factory costs $10 million to build.
• The new capacity will meet the company's needs for 10 years.
• The factory is worth $14 million over 10 years.

****I do not need the entire paper, just the calculations for the paper and short explaination of calculations so that I can explain in the paper. PLEASE do not give me answers below; has already been used, but I do need the same formatting. Thanks!!!!

Year	Cash Flow	PV Factor	Present Value
0	(10,000,000)	1.0000	(10,000,000)
1	150,000	0.9091	136,364
2	150,000	0.8264	123,967
3	150,000	0.7513	112,697
4	150,000	0.6830	102,452
5	150,000	0.6209	93,138
6	150,000	0.5645	84,671
7	150,000	0.5132	76,974
8	150,000	0.4665	69,976
9	150,000	0.4241	63,615
10	14,150,000	0.3855	5,455,438
	Net present value		(3,680,709)

Year	Cash Flow	PV Factor	Present Value
0	(10,000,000)	1.0000	(10,000,000)
1	150,000	0.9434	141,509
2	150,000	0.8900	133,499
3	150,000	0.8396	125,943
4	150,000	0.7921	118,814
5	150,000	0.7473	112,089
6	150,000	0.7050	105,744
7	150,000	0.6651	99,759
8	150,000	0.6274	94,112
9	150,000	0.5919	88,785
10	14,150,000	0.5584	7,901,286
	Net present value		(1,078,460)

In the event of a 12% cost of capital, the NPV has a negative of $4,644,841 which is much lower than the net present value at a weighted cost of capital of 6% and 10%.

Year	Cash Flow	PV Factor	Present Value
0	10,000,000)	1.0000	(10,000,000)
1	150,000	0.8929	133,929
2	150,000	0.7972	119,579
3	150,000	0.7118	106,767
4	150,000	0.6355	95,328
5	150,000	0.5674	85,114
6	150,000	0.5066	75,995
7	150,000	0.4523	67,852
8	150,000	0.4039	60,582
9	150,000	0.3606	54,092
10	14,150,000	0.3220	4,555,921
	Net present value		(4,644,841)