Radex Electric Co.

Forecasting and Investment

Equipment cost $45,000.00

Useful life in years 3
Production function Q=6300*K1/2*L1/2 Where; K=no. of machines
L=no. of workers
Yearly wages Warehouse, factory & office rental fee
Year Wages Year Rent
2020 $20,000.00 2020 $50,000.00
2021 $21,200.00 2021 $50,000.00
2022 $22,472.00 2022 $50,000.00

Cost of component per finished product

Year Cost
2020 $4.00
2021 $4.00
2022 $4.00

Sales data and forecast

Year Sales (pcs) Simple Weighted
moving average moving average
2014 17,200.00
2015 17,600.00
2016 18,300.00
2017 18,600.00
2018 18,700.00
2019 18,900.00
2020 18,800.00 18,720.00
2021
2022

Revenue Plan Forecast

Year Order Price/unit Revenue
2020 18,720.00 18 336,960.00
2021 18,720.00 18 336,960.00
2022 19,656.00 19.08 375,036.48
Totoal evenue expected for the three years (2020+2021+2022) 1,048,956.48

QUESTIONS:
1. What will be the predicted sales of 2020? (5 points)
Based on more accurate method, the Weighted Moving Averages
(0.9*18700+0.1*18900) 18,720 units

2. How many prodcuts will be produced in the next 3 years and how many workers will be required?
Products: the forecast of (2020+2021+2022)
(18720+18720+19656)= 57,096 units
3. What is the net present value of the project(buying the new machine)? ( 8points)

Year Units cost/unit Production cost Wages Rent Revenue

(a) (b) (c) (d) (e)
2020 18720 $4.00 $74,880.00 $20,000.00 $50,000.00 336,960.00
2021 18720 $4.00 $74,880.00 $21,200.00 $50,000.00 336,960.00
2022 19656 $4.00 $78,624.00 $22,472.00 $50,000.00 375,036.48
57,096.00 $228,384.00 $63,672.00 $150,000.00 1,048,956.48

Interest rate: 5%
Period of cashflows Cashflows Present value
(e)-(b+c+d)

0 -$45,000.00 -$45,000.00
1 192,080.00 $182,933.33
2 190,880.00 $173,133.79
3 223,940.48 $193,448.21
$504,515.33

Net Present Value $504,515.33

4. Is it worth investing in the new machine?

It is worthwhile to invest in the new project because it has a Net Present Value of $ 504,515.33

References:
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excel file (aws4_request&X-Amz-SignedHeaders=host&X-Amz-Signature=b7af8107555ee8e65d9c5f8a642035b0070493e6f21dd0e5735cec25d6939dc8)

excel file (aws4_request&X-Amz-SignedHeaders=host&X-Amz-Signature=9d5f5647cc74d77aef6f109e6509f3bcf9f1344f1eb5312e1b9c02757d89db02)

FV PV

Rate 5% Rate 8.65%

Term 120 Term 15330
PMT 0 PMT 0
PV 0.2866 FV 1000000

Fututre Value £100.00 Present Value ###

Cost 0.2866