Scartnoc Inc. has a contract proposal. The customer will buy the entire 1,000 unit productive capacity at price increasing at the PPI. Also, value added and fixed costs increase at the PPI. The challenge is that raw materials are becoming increasingly rare. Accordingly, the raw material cost inflator is accelerating each year per the table below. The life of the contract and the project is the year before the value added cost + raw material costs exceed the selling price. In addition to the CAPX, year 0 requires an investment equal to 6 months of raw material inventory. That level of inventory, adjusted for cost increases, is maintained through the life, and it is the only working capital item. Depreciation is via the 10-year MACRS. The cost of developing the methodology was $543 over the past 4 years. Your job is to find the NPV of this expansion. Recommend whether to accept, with brief quantitative and qualitative explanation.
Paper#22396 | Written in 18-Jul-2015Price : $17