The Manufacture of Herbal Health Tonic Is a Competitive Industry

question 27

Multiple Choice

The manufacture of herbal health tonic is a competitive industry. The manufacturing facilities have an annual output of 100,000 gallons. Operating costs are $2 per gallon. A 100,000-gallon capacity plant costs $500,000 to build and has an indefinite life, with no salvage value. The cost of capital is 20 percent (assume no taxes) . Your company has discovered a new process that lowers the operating cost per gallon to $1.00. Assuming that the competition will catch up in three years and the market demand is sufficiently high, what is the net present value of building a new plant with new technology?

• A)+$500,000
• B)+$210,648
• C)+$250,000
• D)−$150,000

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Definitions:

Blood Calcium

The concentration of calcium ions in the blood, which is crucial for bone health, muscle function, and nerve signaling.

Parathyroid Glands

Tiny glands in the neck that secrete parathyroid hormone, responsible for controlling blood calcium concentrations.

Osteoclasts

Large bone cells that dissolve bone tissue during growth and healing processes, playing a critical role in bone resorption and remodeling.

Sympathetic Nervous System

Part of the autonomic nervous system that prepares the body for physical activity by accelerating the heart rate, constricting blood vessels, and raising blood pressure among other functions.