NEXT Question 1 Hawke Skateboards is considering building a new plant. Bob Skerr
ID: 2589465 • Letter: N
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NEXT Question 1 Hawke Skateboards is considering building a new plant. Bob Skerritt, the company's marketing manager, is an enthusiastic supporter of the new plant. Lucy Liu, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant. Estimated useful life 15 years $1,520,000 11% Cost of plant $3,040,000 3,040,000 Salvage value 2,690,000 Annual cash outflows Discount rate Bob Skerritt believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a buy American" patriotism that he believes is common among skateboarders. He also notes that the firm has had numerous quality problems with the skateboards by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $152,000 higher than projected above, and that the savings from lower warranty costs and legal costs will be $46,000 per year. He also believes that the project is not as risky as assumed above, and that a 9% discount rate is more reasonable. each of th Compute the net present value of the project based on the original projections. (If the net present value is negative, use either a negative sign preceding the number eg (45), Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) eg-45 or of 100%Explanation / Answer
The Project Shouldn't be accepted.
The Project Should be accepted.
The Project Should be accepted.
1 Based on Original estimates @ 11% Present Outflows -30,40,000 Annual Cash Inflows 30,40,000 Annual Cash Outflows 26,90,000 Net Cash Flows 3,50,000 - Total Net Inflows 3,50,000 PV @ 11% for 15 Years 7.19 Calculation of P.V OF Total Cash Inflows @ 11% for 15 Years 2516500 Present Value of Salvage Value @ 11% 3,17,687 P.V of Cash Inflows 28,34,187 Present Outflows -30,40,000 Net Present Value -2,05,813Related Questions
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