A Northwest party products manufacturer has production facilities in Spokane, WA and Bangladesh. Both facilities have capacities of 1 million units each per year. The cost of production and distribution of party supplies from Spokane is $1/unit. The cost of production and distribution from Bangladesh is 60 Taka/unit. (Current exchange rate is $1=85 Taka). Over the next two years the exchange rate is expected to strengthen by 10% with a 0.5 probability and weaken by 10% with a probability of 0.5. The expected demand this year is about 1.8 million units. Over the next two years the demand is expected to increase by 10% with a probability of 0.5 and decrease by 5% with a probability of 0.5. If demand is more than the capacity of the two plants then the remaining supplies are acquired from a competitor for $2/unit. What is the NPV of total cost with the current manufacturing setup? The company is considering increasing the capacity of the Bangladesh plant by 500,000 units at a fixed cost of $1 million. The fixed cost will be incurred this year. What is the NPV of the revised setup? Should They do it? Assume that the company uses a 10% discount rate.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
A Northwest party products manufacturer has production facilities in Spokane, WA and Bangladesh. Both facilities have capacities of 1 million units each per year. The cost of production and distribution of party supplies from Spokane is $1/unit. The cost of production and distribution from Bangladesh is 60 Taka/unit. (Current exchange rate is $1=85 Taka). Over the next two years the exchange rate is expected to strengthen by 10% with a 0.5 probability and weaken by 10% with a probability of 0.5.
The expected demand this year is about 1.8 million units. Over the next two years the demand is expected to increase by 10% with a probability of 0.5 and decrease by 5% with a probability of 0.5. If demand is more than the capacity of the two plants then the remaining supplies are acquired from a competitor for $2/unit.
- What is the
NPV of total cost with the current manufacturing setup? - The company is considering increasing the capacity of the Bangladesh plant by 500,000 units at a fixed cost of $1 million. The fixed cost will be incurred this year. What is the NPV of the revised setup?
- Should They do it? Assume that the company uses a 10% discount rate.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 7 images
