1. What is the smallest acceptable annual income from a project which has a $70,
ID: 2506346 • Letter: 1
Question
1.
What is the smallest acceptable annual income from a project which has a $70,600 investment cost and a $74,557 salvage value is the life is 15 years and the MARR is 15%?
Enter your answer in this format: 123456.78
2.
A manufacturing company is considering a capacity expansion investment at the cost of $250,000 with no salvage value. The expansion would enable the company to produce up to 30,000 parts per year and the useful life of the additional capacity is seven years. Each part would generate $2 net profit and annual operating and maintenance costs are estimated at $25,000 per year. The market demand for the parts is unlimited, all parts produced will be sold. The MARR of the firm is 10%.
Hypothetically speaking, if the minimum annual production rate to breakeven is 50,000, should the company invest in the capacity expansion and why or why not?
Check all that apply.
Not enough information to make a decision.
No, the company should not invest in the capacity expansion.
At this rate, the benefit of the expansion project outweigh the cost.
The breakeven unit is more than the expanded capacity.
The breakeven unit is less than the expanded capacity.
At this rate, the cost of the expansion project outweigh the benefit.
Yes, the company should invest in the capacity expansion.
Not enough information to make a decision.
No, the company should not invest in the capacity expansion.
At this rate, the benefit of the expansion project outweigh the cost.
The breakeven unit is more than the expanded capacity.
The breakeven unit is less than the expanded capacity.
At this rate, the cost of the expansion project outweigh the benefit.
Yes, the company should invest in the capacity expansion.
Explanation / Answer
Ans 1:
NPV = 0
NPV = - 70,600 + P/1.15 + P/1.15^2 + .......P/1.15^15 + 74,557/1.15^15
0 = -70,600 + 5.847*P + 9162.64
P = $ 10,506.83....(ans)
Ans 2 :
No it should not invest becuase
The breakeven unit is less than the expanded capacity.
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