The product development group of a high-tech electronics company developed five
ID: 1138306 • Letter: T
Question
The product development group of a high-tech electronics company developed five proposals for new products. The company wants to expand its product offerings, so it will undertake all projects that are economically attractive at the company’s MARR of 20% per year. The cash flows (in $1000 units) associated with each project are estimated. Which projects, if any, should the company accept on the basis of a present worth analysis?
Project
A
B
C
D
E
Initial Investment
$-700
$-1,300
$-500
$-1,500
$-1,200
Operating Cost, per Year
$-150
$-200
$-250
$-300
$-400
Revenue, per Year
$300
$225
$550
$600
$750
Salvage Value
$10
$30
$5
$20
$120
Life
3 years
10 years
5 years
8 years
4 years
The present worth of project each A,B,C,D,E are:
Project
A
B
C
D
E
Initial Investment
$-700
$-1,300
$-500
$-1,500
$-1,200
Operating Cost, per Year
$-150
$-200
$-250
$-300
$-400
Revenue, per Year
$300
$225
$550
$600
$750
Salvage Value
$10
$30
$5
$20
$120
Life
3 years
10 years
5 years
8 years
4 years
Explanation / Answer
PW of A=PW of Cash Outflow-PW of Cash Inflow
Cash Outflow=Operating Cost, Initial Investment
Cash Inflow=Revenue, Salvage
PW of A=300/1.1+300/1.1^2+300/1.1^3+10/1.1^3-150/1.1^1-150/1.1^2-150/1.1^3-700=-$319.46K
PW of B=225(1/1.1+...1/1.1^10)+30/1.1^10-200(1/1.1+...1/1.1^10)-1300=225*6.114+11.56-200*6.114-1300=-$1135.6K
PW for C=550(1/1.1+...1/1.1^5)+5/1.1^5-250(1/1.1+...1/1.1^5)-500=550*3.8+3.10-250*3.8-500=643.1K
PW for D=600(1/1.1+...1/1.1^8)+20/1.1^5-300(1/1.1+...1/1.1^8)-1500=600*5.33+9.33-300*5.33-1500=108.33K
PW for E=750(1/1.1+...1/1.1^4)+120/1.1^5-400(1/1.1+...1/1.1^8)-1200=750*3.17+81.96-400*3.17-1200=-8.54K
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.