Problem: Nonesuch Nursery is considering growing poinsettias for sale in December. Using the data below, use the payback and net present value methods to determine if this is a good idea
1. The greenhouses are empty from July 1. However shade cloth at a cost of $ $20,000 and lights at a cost of $15,000 would need to be purchased.
2. The light fixtures should last 15 years. The shade cloth will need to be replaced after 5 years
3. Operating Cost will increase by:
| Cuttings |
|
|
$ 5,000 |
| Pots |
|
|
$ 1,000 |
| Soil |
|
|
$ 2,000 |
| water |
|
|
$ 1,000 |
| light tubes |
|
|
$ 500 |
| electricity |
|
|
$ 1,000 |
| wages & benefits |
|
$ 10,000 |
| Total |
|
|
$ 20,500 |
4. Nonesuch expects inflation to be about 3% per year over the next 15 years for all operating costs.
5. Sales Revenue is expected to start at $30,000 and grow by 5% per year
6. Nonesuch expects investments to earn at least 15%
Calculate Payback computations and NPV Comutation