Please show the work/steps how to do this!! thank you!! LG display will build a
ID: 1190537 • Letter: P
Question
Please show the work/steps how to do this!! thank you!!
LG display will build a LCD production plant at the cost of $ 4 billion. The plant will produce panels larger than 40 inches using glass substrates between 2200 mm and 2500 mm with a total capacity of 120,000 units per month. The plant has an expected life of 8 years with salvage value of $200 million. If a unit generates $781 in revenues against $210 in costs, fixed annual costs are $30 million per year, and the MARR is 10% per year, answer the following:
If the plant takes two years to build ($2 billion spent each year) and then operates for 8 years, what is the equivalent annual cost of the investment cost payments over the plants expected operating period?
Explanation / Answer
Production plant cost = $ 2,000,000,000 per year for 2 years
So Total Production plant cost = $ 2,000,000,000 x 2 = $ 4,000,000,000 …………. (a)
Fixed annual costs = $30,000,000 per year for 8 years (as 8 years of operating)
So total fixed annual costs = $30,000,000 x 8 = $240,000,000 …………. (b)
Total Units Produced per month = 120,000
Total Units Produced for 1 years = 120,000 x 12
Total Units Produced for 8 years = 120,000 x 12 x 8 = 11,520,000
Cost per unit = $210
Total Cost for 8 years = $210 x 11,520,000 = $2,419,200,000 …………. (c)
Total Cost = (a) + (b) + (c)
= $ 4,000,000,000 + $240,000,000 + $2,419,200,000
= $ 6,659,200,000
Total years = 2 years to build the plant + 8 years of operating period = 10 years
Annual Cost over the plants expected operating period = Total Cost / 10
= $ 6,659,200,000 / 10
= $ 665,920,000