Proposal A New Factory Assume discount rate or weighted average cost of capital 10%- Ignore all taxes and depreciation. A company wants to build a…

Proposal A  New Factory

Assume discount rate or weighted average cost of capital 10%- Ignore all taxes and depreciation.

A company wants to build a new factory for increased capacity. Using NPV method of capital budgeting. Building new factory will increase capacity by 30%

Current capacity is $10 million of sales with 5% profit margin

Factory Cost $10 million to build

New capacity will meet company need for 10 years

The factory is worth $14 million over 10 years. Should this project be accepted or rejected

Explain effect of higher and lower cost of capital on firm’s long-term financial decision.

Apply calculations analyze the use of capital budgeting techniques in strategic financial management

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