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1. A proposed project has an initial cost of $100k and annual costs of $25k for the entire project is expected to begin providing an income of $20k in year 5, which will increase by $10k each subsequent year until the end of the project. Calculate the ROI using (a) the Accounting Method and (b) the Engineering Method. Assume an annual interest rate of 5%. Remember to draw the cash flow diagram. 2. Calculate the Rate of Return for the project described in the previous problem.

1. A proposed project has an initial cost of $100k and annual costs of $25k for the entire project is expected to begin providing an income of $20k in year 5, which will increase by $10k each subsequent year until the end of the project. Calculate the ROI using (a) the Accounting Method and (b) the Engineering Method. Assume an annual interest rate of 5%. Remember to draw the cash flow diagram. 2. Calculate the Rate of Return for the project described in the previous problem.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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1. A proposed project has an initial cost of $100k and annual costs of $25k for the entire 20-year life of the project. project is expected to begin providing an income of $20k in year 5, which will increase by $10k each subsequent year until the end of the project. Calculate the ROI using (a) the Accounting Method and (b) the Engineering Method. Assume an annual interest rate of 5%. Remember to draw the cash flow diagram. 2. Calculate the Rate of Return for the project described in the previous problem.
Transcribed Image Text:1. A proposed project has an initial cost of $100k and annual costs of $25k for the entire 20-year life of the project. project is expected to begin providing an income of $20k in year 5, which will increase by $10k each subsequent year until the end of the project. Calculate the ROI using (a) the Accounting Method and (b) the Engineering Method. Assume an annual interest rate of 5%. Remember to draw the cash flow diagram. 2. Calculate the Rate of Return for the project described in the previous problem.
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