Module 2 - In an economy far far away, the manufacturing of skin health tonic...
50.1K
Verified Solution
Link Copied!
Question
Finance
Module 2 - In an economy far far away, the manufacturing of skin health tonic industry is competitive. Manufacturing facilities in this industry have an average annual output of 100,000 gallons. On average, operating costs are $2 per gallon while 100,000 gallon capacity plant costs $500,000 to build, but with indefinite life (and no salvage value). The appropriate cost of capital is 20% per year. Assume there are no taxes involved as it is a promoted industry by the corresponding government.
Required: A. What is the equilibrium price of tonic per gallon? [5 marks]
B. Your company has discovered a new process that lowers the operating cost per gallon to $1.50. Assuming that the competition will never catch up and the market demand is sufficiently high, what is the net present value (NPV) of building a new plant with new technology? [5 marks]
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
