As the financial advisor to All Star Manufacturing
As the financial advisor to All Star Manufacturing you are evaluating the following new investment in a manufacturing project: – The project has a useful life of 8 years. Land costs $10m and is estimated to have a resale value of $25m at the completion of the project. Buildings cost $12m, with allowable depreciation of 8% pa reducing balance and a salvage value of $10m. Equipment costs $5m, with allowable depreciation of 15% pa reducing balance and a salvage value of $1m. An investment allowance of 20% of the equipment cost is available. Revenues are expected to be $13m in year one and rise at 5% pa. Cash variable costs are estimated at 40% of revenue. Cash fixed costs are…
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