Essay: Solar Panel Project Evaluation for Gladiators Inc. in the Philippines
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Task
Show Out All The Calculation With Formula And Answer Provide a Reasoned Recommendation If The Company Should Proceed With The Solar Panel Project Based On All The Calculation.
Question 2 [15 marks]
Gladiators Inc. in the Philippines is considering the manufacture of solar panels for residential use. This project involves a capital investment of $220,000. The machine to make the panels has a three-year life and has a residual value of $40,000. The company uses the straight-line method of depreciation. Sales volumes of 6,000 units are forecast for the first year and expected to grow by 10 percent per annum over the life of the project. In the first year, the product has a selling price of $60 per unit and a variable cost of $36 per unit. Every year, these figures are expected to grow by 5 percent and 3 percent respectively. A one-time fixed overhead cost of $60,000 will be incurred at project commencement. A safety inspection will be due at the end of year 2. The relevant authority has quoted an inspection fee of $3,000. The project requires an initial working capital of $30,000, of which 80 percent is recoverable at the end of the project life. The cost of capital is 12 percent and the tax rate is 15 percent.
Required: Provide a reasoned recommendation if the company should proceed with the solar panel project. requirement)