Problem:
A cell phone tower supplier is considering a new line of towers to replace an existing tower. The existing towers cost $300,000 and are expected to last 25 yrs. The retooling required for the new towers is expected to cost $1,000,000 and is expected to last 10 years. Materials for each tower are expected to cost $150,000 and labor for each tower is expected to cost $140,000. Maintenance for manufacturing equipment is expected to cost $60,000 per year and factory overhead is expected to cost $2,000,000 per year.
Required:
Assuming the number of towers sold remains unchanged at 500 per year, how much should HFA charge for the new tower? Assume a Rate of Return of 10%.
If the new tower is expected to last 30 years, is this a good deal for the customer? Explain in detail and provide all calculation.