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Data:
Cost of new equipment 200,000
Expected life of equipment in years 5 years
Disposal value in 5 years 40,000
Life production - number of cans 5,500,000
Annual production or purchase needs 1,100,000
Number of workers needed 3
Annual hours to be worked per employee 2000 hours
Earnings per hour for employees 12.00
Annual health benefits per employee 2,500
Other annual benefits per employee-% of wages 18%
Cost of raw materials per can 0.25
Other variable production costs per can 0.05
Costs to purchase cans - per can 0.45
Required rate of return 12%
Tax rate 35%
(Payback Period )
Initial Investment/Annual Cash Saving
$200,000/ $58,351 = 3.4 years
IRR 17.99%