The Clearcut Lumber Company is considering investment in a new plywood manufactu
ID: 2715290 • Letter: T
Question
The Clearcut Lumber Company is considering investment in a new plywood manufacturing facility. The initial cost of the plant will be $1,250,000. Annual cost and revenue items are shown below. The discount rate is 14 percent, Clearcuts marginal tax rate is 40 percent, and the plant will be depreciate over a 12 year period using straight line depreciation. Calculate the net present value of the project and conduct a sensitivity analysis on each of the underlying factors (assume a 10 percent adverse change in each factor separately). Economic Life: 20 years Volume: 2.5 million square feet per year Price: 0.75 per square foot Labor Cost: 0.08 per square foot Lumber cost: $.17 per square foot Operation Cost: $100,000 per year
Explanation / Answer
The Clearcut Lumber Company is considering investment in a new plywood manufactu