Free Chegg Answer from TechLaCarte

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Learning Hub <learning@techlacarte.net> Wed, 30 Dec 2020 at 8:30 a.m.

To: shyam.agrawal33@gmail.com <shyam.agrawal33@gmail.com>

Welcome to the  family of TechLaCarte, Recently you've asked for Unblur this Chegg Question on our website:

https://www.chegg.com/homework-help/questions-and-answers/examining-viability-capital-investment-firm-interested--
project-require-initial-investment-q11115745

  Please find your Answer below (or) in the attached Image / Document!

Question:
Expert Answer
An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action.
Put another way, the benefits you could have received by taking an alternative action.

1. Opportunity cost associated with the two employees is 80,000. As the other divison has no alternative use of them
but they are covered by a union contract so the company has to pay the salary anyways. Thus the cost associated
with them becomes the opportunity cost as they would now be used in the project.
2. Opportunity of packaging plant is zero as the excess capacity is of no use as of now.
3. Rental estimated for Van = 3,000 and this for 5 years so the total is 15,000 opportunity cost.

4)

Year 0 1 2 3 4 5

           
Initial investment
500,000 250,000

              
Revenue
400,000 400,000 400,000 400,000 400,000

              
Cost of goods sold
160,000 160,000 160,000 160,000 160,000

Gross Profit               
 240,000 240,000 240,000 240,000 240,000

                        

Salary
40,000 40,000 40,000 40,000 40,000

                                       

Depreciation on van
2,000 2,000 2,000 2,000 2,000

              
Net cashflow
198,000 198,000 198,000 198,000 198,000

                        

Tax
79,200 79,200 79,200 79,200 79,200

After tax operating               

cash flow 118,800 118,800 118,800 118,800 118,800

5)

Year 0 1 2 3 4 5

        
Initial investment     250,000
500,000

           
Revenue     400,000
400,000 400,000 400,000 400,000

           
Cost of goods sold     160,000
160,000 160,000 160,000 160,000

           
Gross Profit     240,000
240,000 240,000 240,000 240,000

                          

Salary
40,000 40,000 40,000 40,000 40,000

                                    

Depreciation on van
2,000 2,000 2,000 2,000 2,000

           
Net cashflow     198,000
198,000 198,000 198,000 198,000

                          

Tax
79,200 79,200 79,200 79,200 79,200

After tax operating            

    118,800
cash flow 118,800 118,800 118,800 118,800

Add tax benefit on                                                         

depreciation 800 800 800 800 800

                 
Total cash flows (130,400)
(500,000) 119,600 119,600 119,600 119,600

                           

PV @ 10%
(500,000) 108,727 98,843 89,857 (89,065) 74,262

     
NPV
(217,375)

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