A company wants to invest into a new production process and is trying to determi

Question

A company wants to invest into a new production process and is trying to determine the minimum investment amount to break even at a MARR of 7%. The process is used 4,000 hours per year, and the hourly savings are expected to be $0.60. They will be using the process for five years, and it is expected to need yearly O & M expenses of $1,400.

a) What amount of initial investment is needed to satisfy the above requirements?

b) If the MARR becomes 5.5% will the process be profitable?

I am lost please help me figure this problem out!

Explanation / Answer

Nowe can calcuate the NPV of the cashflows

= 1000/1.07^1 ..............
+1000/(1.07)^5

=4100.20

b) Now if MARR becomes 5.5% NPV value would increase

The price of production process would increase and hence project would become unprofitable

Savinsg Per years 2400 2400 2400 2400 2400 Expenses per year 1400 1400 1400 1400 1400 Net Savings 1000 1000 1000 1000 1000

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