The Perry Barr plc is a manufacturing company located in Birmingham. Recently, the Management of Perry Barr plc is considering an initial investment of £440,000 on some plant and machinery to manufacture a new product. The project also requires £200,000 on working capital. The expected sales and cost of the project are as follows: Year Sales Variable Costs Fixed Costs 1 £850,000 £500,000 £150,000 £980,000 £1,000,000 2 £600,000 £150,000 3 £610,000 £150,000 The plant and equipment will be depreciated on a straight-line basis over three years. The investment in working capital will be recovered at the end of Year 3, and the equipment would be sold for only £20,000. Additional Information: Perry Barr plc pays corporation tax at an effective rate of 20% at the end of each year. The company does not expect this to change over the life of the project. • The company's after-tax cost of capital is 12 per cent per annum.

The Perry Barr plc is a manufacturing company located in Birmingham. Recently, the Management of Perry Barr plc is considering an initial investment of £440,000 on some plant and machinery to manufacture a new product. The project also requires £200,000 on working capital. The expected sales and cost of the project are as follows: Year Sales Variable Costs Fixed Costs 1 £850,000 £500,000 £150,000 £980,000 £1,000,000 2 £600,000 £150,000 3 £610,000 £150,000 The plant and equipment will be depreciated on a straight-line basis over three years. The investment in working capital will be recovered at the end of Year 3, and the equipment would be sold for only £20,000. Additional Information: Perry Barr plc pays corporation tax at an effective rate of 20% at the end of each year. The company does not expect this to change over the life of the project. • The company's after-tax cost of capital is 12 per cent per annum.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 21BEA

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