The Cough Syrup Case
Not what you're looking for?
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.
Purchase this Solution
Solution Summary
This post builds how to solve a case involving capital budgeting decisions
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 $ ...
Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Operations Management
This quiz tests a student's knowledge about Operations Management