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Business, 30.04.2021 18:20 shelatzcreed

A US company is considering building a UK plant. 1. Initial capital outlay: GBP 20 million on plant and machinery.
2. The plant will produce 60,000 items in year 1, and production will increase at 10% a year up to and including year 4. This is incremental sales.
3. The current price of the product is GBP 250 per item and this is expected to increase in line with inflation.
4. The current variable cost of production is GBP 140 per item and, again, this is expected to increase in line with inflation. Of this, GBP 30 per product is sourced from the Home company in America. A profit margin of 25% is made on these sales.
5. The expected inflation rate in the US and UK respectively are 3% and 5%.

Required:
Calculate APV.

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