Calculate the ror for the new plant for a planning horizon


Das Auto is planning to start a new auto manufacturing plant in Medford, OR. The plant will cost $530 million to build and will cost $250,000 annually to maintain. The company can produce 17,000 cars annually of which only 12,000 will be sold every year. Each car sold will bring $12,000 in revenues for the plant. The remaining 5,000 cars will cost $0.75 per car per year, to hold and store, until they can be salvaged (cars must incur holding costs every year until they can be salvaged). Every fifth year, the company will salvage its unsold vehicles from the previous five years for a lump sum of $20 million. Given this information, calculate the ROR for the new plant for a planning horizon of 5 years and MARR of 11%. Should DAS auto fund this new plant? Hint: For ROR try 10% and 12%.

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Financial Management: Calculate the ror for the new plant for a planning horizon
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