The Manufacture of Herbal Health Tonic Is a Competitive Industry

question 53

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 five 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)+$299,061
• D)−$220,000

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Definitions:

Nonoppositional

Approaches or strategies that avoid direct conflict or confrontation, often emphasizing cooperation and mutual benefit in negotiations or relationships.

Unionization

The process by which workers come together to form a union in order to collectively bargain with their employer for better wages, benefits, and working conditions.

Strategic Business Partners

Organizations or individuals who collaborate for the purpose of achieving strategic goals and mutual benefits, often through complementary strengths or capabilities.

Corporate Governance Model

A framework defining the relationships, systems, and processes within and by which corporations are directed and controlled.