Looner Industries is considering investing in a new manufacturing plant. The p

Looner Industries is considering investing in a new manufacturing plant. The plant requires an item of equipment that costs $200000. In addition Looner will
spend $10000 on shipping costs and $30000 on installation charges. The equipment will be housed in a building currently owned by the company. The building
was bought at a cost of $75000 five years ago but it could be sold now for $125000. Similar buildings in the area are leasing for $5000 per month. You estimate that if the new plant is constructed the company will increase its inventories by $25000 while accounts payable also will rise by $5000. New
sales from the plant are estimated to be 120000 units per year at a price of $3.50 per unit. Variable costs are expected to total 60% of sales while fixed
costs are estimated at $20000 per year. The plant has an estimated economic life of 4 years after which time it will be scrapped for $25000 (excluding the
building). Depreciation will be calculated using the 3-year MACRS rates of 33% 45% 15% and 7% for the first through the fourth year respectively. Looner
Industries%u2019 marginal tax rate is 40% and its cost of capital is 10%. Should the plant be built?

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