Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

The Peach Company is thinking of building a new plant to put the peaches it grows into cans. The plant is expected to last for 20 years. Its initial cost is $20 mln. This cost can be depreciated over the full 20-year of the plant using straight line depreciation. It will require a major renovation which will cost $8 mln in real terms after 10 years. This cost of renovation can be depreciated (again using straight line depreciation) over the remaining 10 years of the plan's life. The land the plant is built on could be rented out for $500 000 a year in nominal terms for twenty years. The salvage value of the plant at the end of the twenty years is $3.5 mln in nominal terms. This salvage value is attributed to t he original expenditure on the plant for tax purposes. There is no salvage value with regard to the renovation.

The plant could be able to produce 50 mln cans of peaches a year. The price of a can of peaches is currently $0.50. It is expected to grow at a rate of 3% per year in real terms for 6 years and then at 0% in real terms for the reminder of the plant's life. The firm expects to be able to sell all the cans of peaches it can produce. The peaches the firm puts in the cans are grown in the firm's own orchards. If the peaches were not canned they could be sold to supermarkets. The current price they could obtain per peach is $0.1. This price is expected to grow at a rate of 2% in real terms for 5 years and then at 1% in real terms for the next five years and finally at 0% in real terms for the reminder of the plant's life. Each can requires 2.5 peaches to fill it. The raw materials for the cans currently cost $0.05per can. These costs are expected to remain constant in real terms. The labor required to operate the plant costs a total of $5 mln a year in real terms. Initially, the total working capital requirement is $10mln and this is expected to remain constant in real terms.

The rate of inflation is expected to be 4% per year for the next four years and 3% per year for the remainder of the plant's life. The firm's total tax rate including local taxes is 38 per cent. The firm expects to make substantial profits on its other operations so that if it can offset any losses on the peach canning plant for tax purposes. Its opportunity cost of capital for projects of this type is 14% in nominal terms.

Construct two spreadsheets in EXCEL to find the NPV of the peach canning plant. One spreadsheet should be in nominal terms and the other should be in real terms. The value of the real and nominal NPVs should be the same. Should the firm build the plant?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M925291

Have any Question? 


Related Questions in Basic Finance

What is the yield to call of a 20 year to maturity bond

What is the yield to call of a 20 year to maturity bond that pays a 11.13 percent per year, has a $1,000 par value and is currently priced at $1,143? The bond can be called back in 5 years at a call price $1,083. Assume ...

1 under what circumstances is it acceptable for a

1. Under what circumstances is it acceptable for a researcher to use deception in a study with human participants? 2. What kinds of information must be included accurately as part of the informed consent? (That is, what ...

According to anbspsurvey 57of the residents of a city

According to a survey, 57%of the residents of a city oppose a downtown casino. Of these 57%about 8 out of 10 strongly oppose the casino. Complete parts(a) through(c). (a) Find the probability that a randomly selected res ...

Stock a has a beta of 15 and stock b has a beta of 10

Stock A has a beta of 1.5, and Stock B has a beta of 1.0. Determine whether each statement below is true or false. a. Stock A must have a higher standard deviation than Stock B. b. Stock A has a higher expected return th ...

A model of a harbor is made on the length ratio of 3601

A model of a harbor is made on the length ratio of 360:1. Storm waves of 2 m amplitude and 8 m/s velocity occur on the breakwater of the prototype harbor. Significant variables are the length scale, velocity, and g, the ...

The rothmueller museumnbspanswer the required questions at

The Rothmueller Museum:  Answer the "Required" questions at the end of page 2.  Use the below to assist you in answering. Make sure to show all work when applicable. In 1928, Francis P. Rothmueller, a Northwest railroad ...

1 what problems did the decline in housing prices that

1. What problems did the decline in housing prices that began in 2006 cause for the financial system? 2. What actions did the Federal Reserve and Treasury take in dealing with the financial crisis? What is the moral haza ...

What is the difference between a pure discount bond and a

What is the difference between a pure discount bond and a bond that trades at a discount? If issuers successfully sell pure discount bonds in the market, investors must want them. Can you explain why any bond purchaser m ...

1 what does a deficiency judgment mean2 what is a land

1. What does a deficiency judgment mean? 2. What is a land contract? 3. How can mechanics' liens achieve priority over first mortgages that were recorded prior to the mechanics' lien?

1 explain how replication can be conceptualized as a

1. Explain how replication can be conceptualized as a factorial experimental design. 2. Why are research programs more important to the advancement of science than are single experiments? 3. Define a meta-analysis, and e ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro