The RGP Cell Company wants to participate in the upcoming World\'s Fair. To part

Question

The RGP Cell Company wants to participate in the upcoming World's Fair. To participate, the firm needs to spend $1 million in year zero to develop a showcase. The showcase will produce a cash flow of $2.5 million at the end of year one. Then, at the end of year two, $1.54 million must be expended to restore the land on which the showcase was presented to its original condition. Therefore, the project's expected net cash flows are as follows (in thousands of dollars): (a) Plot the present worth of this investment as a function of i. (b) Compute the i*s for this investment. (c) Would you accept this investment at MARR = 15%?

Explanation / Answer

(a). Plot the present worth of this investment as a function of i:

Present worth = Fututr value / (1+i)

$1,000 = $2,500 / (1+i) 1 - $1,540 / (1+i) 2

(b) Compute the i*s for this investment:

        $1,000 = $2,500 / (1+i) 1 - $1,540 / (1+i) 2

                Using excel or financial calculator

                I=10%

(c) Would you accept this investment at MARR = 15%

                Yes, he would accept, if MARR>10%

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