Problem1 A small manufacturing company the company undertake on the basi ng comp

Question

Problem1 A small manufacturing company the company undertake on the basi ng company is considering the addition of one or more new product lines. If vestment capital available for new ventures is $800,000 which one should s of rate of return? Assume the company uses a 5-year project the total amount of investment capital avring the a a MA RR of 20% per year. All cash flow are in $1000 units. recovery period and The rate of return must determine using trial and error m ethod Product Lines S2 -400 -300 T3 U4 -700 400 R1 -200 215 irst cost, $ -5004 400 1&O; cost, ear 470 450 470 320 evenue, S/year : The rate of return must determine using trial and error method

Explanation / Answer

The question says that Minimum accpetable rate of return is 20% for any product.

PRODUCT LINES

T3 S2 U4 R1

INITIAL COST 500000 400000 700000 200000

REVENUE 470000 450000 470000 320000

COSTS 400000 300000 400000 215000

NET 70000 150000 70000 105000

RETURN IN PERCENT 14% 37.5% 10% 52.5%

Based on the above we can say that product S2 and R1 are acceptable and both the products requires captial of 600000 and still company left with 200000 for any other products

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