The manufacture of herbal health tonic is a competitive industry.The manufacturing facilities have an annual output of 100,000 gallons.Operating costs are $2 per gallon.A 100,000-gallon capacity plant costs $500,000 to build and has an indefinite life, with no salvage value.The cost of capital is 20 percent (assume no taxes).Your company has discovered a new process that lowers the operating cost per gallon to $1.Assuming that the competition will catch up in five years and the market demand is sufficiently high, what is the net present value of building a new plant with new technology?

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The Answer of The manufacture of herbal health tonic is a competitive industry.The manufacturing facilities have an annual output of 100,000 gallons.Operating costs are $2 per gallon.A 100,000-gallon capacity plant costs $500,000 to build and has an indefinite life, with no salvage value.The cost of capital is 20 percent (assume no taxes).Your company has discovered a new process that lowers the operating cost per gallon to $1.Assuming that the competition will catch up in five years and the market demand is sufficiently high, what is the net present value of building a new plant with new technology?

The Manufacture of Herbal Health Tonic Is a Competitive Industry