Opportunity costs:
Plant has 15% excess capacity being used at 5% year. At the end of three years you will need to add on to the palnt at cost of $8000000. The expansion should take you thry 15 years of sufficient capacity. You are now considering a new product line that will use up 10% of the current plant. If you undertake this project the nedd to expand will be moved up from the end of 3 to end year 1. Cost of construction the year 1 is 700000. Use a discount rate of 10% what is the opportunity cost in today's dollars for using upexcess plant capacity? assuming product stays in production only 10 years.
I came up with:
-7,000,000(1.10)^-1 + 8,000,000 (1.10)^-3
-7,000,000 * .909 + 8,000,000 * .75131
-6,436,100 + 6,000,000
answer -436,100 for using up something that is idle
scarter I believe this is correct just want a review..
Plant has 15% excess capacity being used at 5% year. At the end of three years you will need to add on to the palnt at cost of $8000000. The expansion should take you thry 15 years of sufficient capacity. You are now considering a new product line that will use up 10% of the current plant. If you undertake this project the nedd to expand will be moved up from the end of 3 to end year 1. Cost of construction the year 1 is 700000. Use a discount rate of 10% what is the opportunity cost in today's dollars for using upexcess plant capacity? assuming product stays in production only 10 years.
I came up with:
-7,000,000(1.10)^-1 + 8,000,000 (1.10)^-3
-7,000,000 * .909 + 8,000,000 * .75131
-6,436,100 + 6,000,000
answer -436,100 for using up something that is idle
scarter I believe this is correct just want a review..