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A manufacturing company is considering a capacity expansion investment at the cost of $49661 with no...

A manufacturing company is considering a capacity expansion investment at the cost of $49661 with no salvage value. The expansion would enable the company to produce up to 30,000 parts per year and the useful life of the additional capacity is seven years. Each part would generate $2.94 net profit and annual operating and maintenance costs are estimated at $5837 per year. The market demand for the parts is unlimited. All parts produced will be sold. The MARR of the firm is 10%.

What is the minimum annual production rate to make this investment justified?

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Answer #1
Year Cash outflows PVF @10% Present value
0 -49661 1 -49661
1 -5837 0.909091 -5306.36
2 -5837 0.826446 -4823.97
3 -5837 0.751315 -4385.42
4 -5837 0.683013 -3986.75
5 -5837 0.620921 -3624.32
6 -5837 0.564474 -3294.83
7 -5837 0.513158 -2995.3
Present worth of cassh outflows -78077
Present annuity factor of 7 years 4.868
Equivalent Aannual cash outflows -16038.8
Divide: Profit per unit 2.94
Number of units to be sold annually -5455.38
The company must produce and sell 5456 unist to justify the investment
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