Week-7 A. Najat Engineering Company LLC wants to acquire new computer software t
ID: 1144353 • Letter: W
Question
Week-7 A. Najat Engineering Company LLC wants to acquire new computer software to work with its clients at AED. 300,000 and the projected benefits for the next three years are as under: Year Beginning of the year 1 End of the year 1 End of the year 2 End of the year 3 Net Cash Flow AED. 300,000 97,600 109,416 223,040 Required to: Assess the economic feasibility of above investment related to the engineering project of Najat y LLC when the Minimum Acceptable Rate of Return (MARR) is 15% and comment thoroughly on the results. A purchase manager of a large merchandising firm has called your General Manager for production to get a price quote for an additional 1,000 units of a given product. The vice president has asked you to prepare a cost estimate. The number of hours required to produce a unit of 50. The average labor rate is S120 per hour. The materials cost $140 per unit. Overhead for an additional 1,000 units is estimated at company wants to have a 30% profit margin, what should be the unit 50% of the direct labor cost. If the price to quote?Explanation / Answer
(A)
Net cash flow at the beginning of the year 1 = -300,000
Net cash flow at the end of the year 1 = 97,600
Net cash flow at the end of the year 2 = 109,416
Net cash flow at the end of the year 3 = 223,040
Calculate the present worth of the net cash flows -
Present worth = -300,000 + 97,600(P/F, 15%, 1) + 109,416(P/F, 15%, 2) + 223,040(P/F, 15%, 3)
Present worth = -300,000 + (97,600 * 0.8696) + (109,416 * 0.7561) + (223,040 * 0.6575)
Present worth = -300,000 + 84,872.96 + 82,729.44 + 146,648.8 = 14,251.2
The Present worth of net cash flows is AED 14,251.2
In order to assess the economic feasibility of the stated investment at given MARR, we have used the Present Worth Analysis and has calculated the present worth of the given net cash flows.
Present worth helps in determining the feasibility of the project.
In case of single project or investment decision,
If present worth of the given net cash flows is positive then this indicates that stated project or investment is economically feasible and should be undertaken.
On the other hand, if present worth of the given net cash flows is negative then this indicates that stated project or investment is not economically feasible and should not be undertaken.
In given case, the present worth of the given net cash flows is positive. This implies that above stated investment related to the engineering project at the given MARR is economically feasible.
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