Explore BrainMass
Share

Explore BrainMass

    The Cough Syrup Case

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    I need finance help. Please see the attached case study for the entire question. It asks how to solve a case involving capital budgeting decisions.

    © BrainMass Inc. brainmass.com October 10, 2019, 7:02 am ad1c9bdddf
    https://brainmass.com/business/finance/the-cough-syrup-case-565698

    Attachments

    Solution Preview

    Thank you for asking BrainMass. I also included the solution in the attached Excel document.

    The Cough Syrup Case

    Inflation rate 3% per year
    Life of plant 25 years

    Initial Cost $ 65,000,000
    Depreciation period for initial cost 15 years
    Salvage value at the end of 15 years $ 3,000,000 (Real)
    Salvage value at the end of 15 years $ 4,673,902 (Nominal)
    Depreciation period for renovation cost 10 years
    Renovation cost at the end of 15 years $ 10,000,000 (Real)
    Renovation cost at the end of 15 years $ 15,579,674 (Nominal)
    Salvage value of renovated plant at the end of 25 years $ 2,000,000 (Real)
    Salvage value of renovated plant at the end of 25 years $ 4,187,556 (Nominal)

    Production capacity 10,000,000 million
    Price per bottle $ 3.50
    Increase in price for first 5 years 5% (Real)
    Increase in price for next 5 years 2% (Real)

    Ingrediate cost $ 1.00 per bottle
    Increase in ingredient cost 1% (Real)
    Total labor cost $ 5,000,000 million
    Increase in labor cost 5% (Real)
    Land cost (rent) $ 1,500,000 (Real)
    Tax rate 35%
    Opportunity cost 10% (nominal)

    Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

    Initial cost $ -65,000,000
    Renovation cost $ -15,579,674

    Inflation Factor 1.000 1.030 1.061 1.093 1.126 1.159 1.194 1.230 1.267 1.305 1.344 1.384 1.426 1.469 1.513 1.558 1.605 1.653 1.702 1.754 1.806 1.860 1.916 1.974 2.033 2.094
    Price per bottle (real) $ 3.68 $ 3.86 $ 4.05 $ 4.25 $ 4.47 $ 4.56 $ 4.65 $ 4.74 $ 4.84 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93 $ 4.93
    Price per bottle (nominal) $ 3.79 $ 4.09 $ 4.43 $ 4.79 $ 5.18 $ 5.44 $ 5.72 $ 6.00 $ 6.31 $ 6.63 $ 6.83 $ 7.03 $ 7.24 $ 7.46 $ 7.68 $ 7.91 $ 8.15 $ 8.40 $ 8.65 $ 8.91 $ 9.17 $ ...

    Solution Summary

    This post builds how to solve a case involving capital budgeting decisions

    $2.19