A company that makes food-friendly silicone (for use in cooking and baking pan c

Question

A company that makes food-friendly silicone (for use in cooking and baking pan coatings) is considering the independent projects shown, all of which can be viable for only 10 years. If the company's MARR is 14% per year, determine which should be selected on the basis of a present worth analysis. The financial values are in $1000 units 800 250 6 $-2,400 450 5 $-4,600 1600 5,600 1600 7 First Cost nnual Net Income, per Year Salvage Value The present worth of project A is determined to be $ The present worth of project B is determined to be $ The present worth of project C is determined to be $ The present worth of project D is determined to be $ Project A is ( (Click to select) # ) Project B is (Click to select)). Project C is (Click to select) ] . Project D is (click to select) .

Explanation / Answer

ANSWER:

1) Pw of a = first cost + annual net income(p/a,i,n) + salvage value(p/f,i,n)

i =14% and n = 10 years

pw of a = -800,000 + 250,000(p/a,14%,10) + 6,000(p/f,14%,10)

pw of a = -800,000 + 250,000 * 5.216 + 6,000 * 0.2697

pw of a = -800,000 + 1,304,000 + 1,618.2

pw of a = $505,618.2

2) Pw of b = first cost + annual net income(p/a,i,n) + salvage value(p/f,i,n)

i =14% and n = 10 years

pw of b = -2,400,000 + 450,000(p/a,14%,10) + 5,000(p/f,14%,10)

pw of b = -2,400,000 + 450,000 * 5.216 + 5,000 * 0.2697

pw of b = -2,400,000 + 2,347,200 + 1,348.5

pw of b = -$51,451.5

3) Pw of c = first cost + annual net income(p/a,i,n) + salvage value(p/f,i,n)

i =14% and n = 10 years

pw of c = -4,600,000 + 1,600,000(p/a,14%,10) + 7,000(p/f,14%,10)

pw of c = -4,600,000 + 1,600,000 * 5.216 + 7,000 * 0.2697

pw of c = -4,600,000 + 8,345,600 + 1,887.9

pw of c = $3,747,488

4) Pw of d = first cost + annual net income(p/a,i,n) + salvage value(p/f,i,n)

i =14% and n = 10 years

pw of d = -5,600,000 + 1,600,000(p/a,14%,10) + 7,000(p/f,14%,10)

pw of d = -5,600,000 + 1,600,000 * 5.216 + 7,000 * 0.2697

pw of d = -5,600,000 + 8,345,600 + 1,887.9

pw of d = $2,747,488

if there is one project to be selected then we will select project c otherwise project a , c and d will be selected as they have positive net present value while b will not be selected as it has a negative present value.

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