Bridgeway Pharmaceuticals manufactures and sells generic over- the -counter

Bridgeway Pharmaceuticals manufactures and sells generic over- the -counter medications in plants located throughout hemisphere. One of its plants is trying is trying to decide whether to automate a portion of its packaging process by purchasing an automated waste disposal and recycling machine. The proposed investment is $400,000 to purchase the necessary equipment and get it into place. The machine will have a five year anticipated life and will be depreciated at a rate of $80,000 per year, toward a zero anticipated salvage value. The firm’s analysts estimate that the purchase of View complete question » QUESTION Bridgeway Pharmaceuticals manufactures and sells generic over- the -counter medications in plants located throughout hemisphere. One of its plants is trying is trying to decide whether to automate a portion of its packaging process by purchasing an automated waste disposal and recycling machine. The proposed investment is $400,000 to purchase the necessary equipment and get it into place. The machine will have a five year anticipated life and will be depreciated at a rate of $80,000 per year, toward a zero anticipated salvage value. The firm’s analysts estimate that the purchase of the new waste- handling system will bring annual cost savings of $400,000 from reduced labor costs, $18,000 per year from reduced waste disposal costs, and $200,000 per year from the sale of reclaimed plastic waste Document Preview: QUESTION
Bridgeway Pharmaceuticals manufactures and sells generic over- the -counter medications in plants located throughout hemisphere. One of its plants is trying is trying to decide whether to automate a portion of its packaging process by purchasing an automated waste disposal and recycling machine.
The proposed investment is $400,000 to purchase the necessary equipment and get it into place. The machine will have a five year anticipated life and will be depreciated at a rate of $80,000 per year, toward a zero anticipated salvage value. The firm’s analysts estimate that the purchase of the new waste- handling system will bring annual cost savings of $400,000 from reduced labor costs, $18,000 per year from reduced waste disposal costs, and $200,000 per year from the sale of reclaimed plastic waste net of selling expenses. Bridgeway purchase requires a 20% return from capital investments and faces a 35% tax rate.
A. Using the estimates provided above, Should Bridgeway purchase the new automated waste-handling system?
B. The manager at the plant where the handling system is being contemplated has raised some questions regarding the potential savings from the system. He asked the financial analyst in charge of preparing the proposal to evaluate the impact of the variations in the price of the plastic waste materials, which have proving to be volatile in the past. Specifically, what would be the impact of the price reductions for the waste that drive the revenues from the sales of waste down to half their estimated amounts in years 1 through 5?
C. (Simulation) Model the investment, whose value is determined by the following random variables: Annual revenues from reclaimed waste in year 1 follow a triangular distribution with a minimum value of $100,000, a most likely value $200,000, and a maximum of $300,000. In year 2 (and each year thereafter), the distribution is still triangular; however, the most likely value is now equal to the value observed in the… Attachments: Q..docx


 

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