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You work for Kitchenware company that specializes in manufacturing frying pans. You currently sell 300,000 units per year and expect sales to increase by 5.5% each year for the next 10 years. The current sales price is $30 and the variable costs are $22. You expect both costs to increase by 3% each year. Your existing manufacturing facility has the capacity to manufacture 500,000 units. You are considering using the excess capacity to manufacture Woks. You expect sales in the first year to be 100,000. These sales are expected to grow by 10% each year for the next 10 years. The current sales price would be $40 and the variable costs per unit would be $25. You expect both costs to increase by 3% each year. If you decide to build a new manufacturing facility, it will cost you $10 million today. This cost is expected to increase by 4% each year. The manufacturing facility will have a useful life of 25 years and will be depreciated using the straight-line method. The tax rate is 35%, the cost of capital is 13% and the project lifetime is 10 years. If you decide to offer the new product, you will run into capacity issues in the fourth year. True False You work for Kitchenware company that specializes in manufacturing frying pans. You currently sell 300,000 units per year and expect sales to increase by 5.5% each year for the next 10 years. The current sales price is $30 and the variable costs are $22. You expect both costs to increase by 3% each year. Your existing manufacturing facility has the capacity to manufacture 500,000 units. You are considering using the excess capacity to manufacture Woks. You expect sales in the first year to be 100,000. These sales are expected to grow by 10% each year for the next 10 years. The current sales price would be $40 and the variable costs per unit would be $25. You expect both costs to increase by 3% each year. If you decide to build a new manufacturing facility, it will cost you $10 million today. This cost is expected to increase by 4% each year. The manufacturing facility will have a useful life of 25 years and will be depreciated using the straight-line method. The tax rate is 35%, the cost of capital is 13% and the project lifetime is 10 years. If you decide to reduce production, the present value of the lost profits after tax is $1,593,263.25 True False You work for Kitchenware company that specializes in manufacturing frying pans. You currently sell 300,000 units per year and expect sales to increase by 5.5% each year for the next 10 years. The current sales price is $30 and the variable costs are $22. You expect both costs to increase by 3% each year. Your existing manufacturing facility has the capacity to manufacture 500,000 units. You are considering using the excess capacity to manufacture Woks. You expect sales in the first year to be 100,000. These sales are expected to grow by 10% each year for the next 10 years. The current sales price would be $40 and the variable costs per unit would be $25. You expect both costs to increase by 3% each year. If you decide to build a new manufacturing facility, it will cost you $10 million today. This cost is expected to increase by 4% each year. The manufacturing facility will have a useful life of 25 years and will be depreciated using the straight-line method. The tax rate is 35%, the cost of capital is 13% and the project lifetime is 10 years. If you decide to offer the new product, you will run into capacity issues in the fourth year. True False You work for Kitchenware company that specializes in manufacturing frying pans. You currently sell 300,000 units per year and expect sales to increase by 5.5% each year for the next 10 years. The current sales price is $30 and the variable costs are $22. You expect both costs to increase by 3% each year. Your existing manufacturing facility has the capacity to manufacture 500,000 units. You are considering using the excess capacity to manufacture Woks. You expect sales in the first year to be 100,000. These sales are expected to grow by 10% each year for the next 10 years. The current sales price would be $40 and the variable costs per unit would be $25. You expect both costs to increase by 3% each year. If you decide to build a new manufacturing facility, it will cost you $10 million today. This cost is expected to increase by 4% each year. The manufacturing facility will have a useful life of 25 years and will be depreciated using the straight-line method. The tax rate is 35%, the cost of capital is 13% and the project lifetime is 10 years. If you decide to reduce production, the present value of the lost profits after tax is $1,593,263.25 True False

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