U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $13 million now and another $10 million 1 year from now. If total operating costs will be $1.2 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 10 to recover its investment plus a return of 15% per year?
What will be an ideal response?
Find the CR; in $ million units
CR = [-13 - 10(P/F,15%,1)](A/P,15%,10)
= [-13 - 10(0.8696)](0.19925)
= $-4.3229
Revenue required is $4,322,900 per year
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