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ACC - With the possibility of the US Congress relaxing restrictions

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Question;With the possibility of the US Congress relaxing restrictions on cutting old growth timber, a local lumber company is considering an expansion of its facilities. The company believes it can sell lumber for $0.18/board foot. A board foot is a unit of measure for lumber. The tax rate for the company is 30 percent. The company has the following two opportunities:? Build Factory A with annual fixed costs of $20 million and variable costs of $0.10/board foot.? Build Factory B with annual fixed costs of $10 million and variable costs of $0.12/board foot.Required:a. What is the break-even point in board feet for Factory A and Factory B?b. If the company wants to generate an after-tax profit of $2 million with Factory B, how many board feet would the company have to process and sell?c. If demand for lumber is uncertain, which factory is riskier? Why?

 

Paper#39065 | Written in 18-Jul-2015

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