Economics: Final Project

Jul 12th, 2016
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A company is planning to expand one of it’s manufacturing facilities. A piece of property must be purchased at the start of the project at a cost of $1.5 million. The building, which must then be constructed during the first year of the project will cost $3 million. At the end of the first year the company will spend $4 million on equipment and start up cost. Once the company becomes operational it will generate revenue in the amount of $3.5 million the first year of operation. This will increase at the annual rate of 5% over the previous years revenue – each year for 10 years. After 10 years, the sales revenue will stay constant for another 3 years before operation is phased out. (Total project life is 13 years). The expected salvage value of the land at the end of the project is $2 million, the building salvage value will be $1.4 million and the equipment salvage $500,000. The annual operating cost and maintenance costs are estimated to be 40% of the revenue each year.

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Surname 1Name:Course:Professors Name:Date:Final ProjectIntroductionIn any given company, the aim of setting up any company is to make profit. Sometimes itis noted that some companies get profit more than their yearly expectations. As some companiesare making profit beyond their yearly expectations, some other companies get profit way belowthe expectations that are set. In order to compensate for the continued fluctuation in profitmargin, any given company will opt to increase the vastness of its business empire. This is donewith the belief that when the empire of the business is huge, then the profit margin will havebeen favorable. It is important that every company thrive to ensure the economy of any givencompany is maintained and that the economy is heading to the positive direction. No companywould ever feel safe with the profit margin reducing every year, various ways and efforts will bemade to ensure that the operation of the company is for benefit and not loses. However, it is notthe case that not every company that undergoes further development is experiencing positiveresults from the business. It may be the case but what is important for any organization isdevelopment.DiscussionIt is in the interest of every company to expand. The expansion comes in because ofvarious reasons related to every company. One of the reasons that lead to expansion ofSurname 2companies is increased demand and low supply of its goods. This reason is so sensitive

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