Question
help. hard economics question
Willie Thomas 3/23/15 7:28 PM Homework: Quiz 3.1 (MARR, PW, FW, AW, CW) Score: 0 of 1 pt Problem 5-27 (algorithmic) Save 304(3 complete) HW Score: 75%, 3 of 4 pts Question Help $350,000, the building costs $650,000, the equipment costs t is expected that the product will result in sales of $900,000 per year for 10 years, at which time the ny is considering constructing a plant to manufacture a proposed new product. The land costs $300.000, and $150,000 additional working capital is required. It is expected that the product will resut in sales land can be sold for $400,000, the building for $400,000, and the equipment fo expenses for labor, materials, and all other items are estimated to total $425000. If the determine if it should invest in the new product line. Use the AW method. ing capital would be recovered at the EOY 10. The annual company requires a MARR of 13% per year on projects of comparable risk. Click he icon to view the interest and annuity table for discrete compounding when the MARR s 13% per year. The AW is S(Round to the nearest dollar.)
Explanation / Answer
Intial Cash Outlay Land 350000 Building 650000 Equipment 300000 Working Caital 150000 Total Cash outflow 1450000 Cash flow during the period sales 900000 Annual eXps (Labour Material etc) 425000 cash in fiow annually 475000 Present value of cash inflow =475000x PVIFA(13%,10)+860000x PFIV(13%,10) =475000X5.426+860000X.294 =2577350+252840=2830190 850000= RESIDUAL VALUE OF LAND, BUIDING AND EQUIPMENT AT THE END OF PERIOD Net present Value=2830190-1450000 =1380190 So net present value is positive so invest in this projectline
