12.02-PR004 CustomMetalworks is considering the expansion of their cable fabrication business for towers, rigging, winches, and many other uses. They have available $250,000 for investment and have identified the following indivisible alternatives, each of which will provide an exit with full return of the investment at the end of a 5-year planning horizon. Each year, CustomMetalworks will receive an annual return as noted below. MARI is 12%. Investment Initial Investment Annual Return 1 2 3 4 5 $25,000 $40,000 $85,000 $100,000 $65,000 $7,500 $12,000 $20,000 $22,000 $17,000 For the original problem: a. Which alternatives should be selected by CustomMetalworks? b. What is the present worth for the optimum investment portfolio? c. What is the IRR for the optimum investment portfolio?
12.02-PR004 CustomMetalworks is considering the expansion of their cable fabrication business for towers, rigging, winches, and many other uses. They have available $250,000 for investment and have identified the following indivisible alternatives, each of which will provide an exit with full return of the investment at the end of a 5-year planning horizon. Each year, CustomMetalworks will receive an annual return as noted below. MARI is 12%. Investment Initial Investment Annual Return 1 2 3 4 5 $25,000 $40,000 $85,000 $100,000 $65,000 $7,500 $12,000 $20,000 $22,000 $17,000 For the original problem: a. Which alternatives should be selected by CustomMetalworks? b. What is the present worth for the optimum investment portfolio? c. What is the IRR for the optimum investment portfolio?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Parts G & H
Transcribed Image Text:In addition to the original opportunity statement, CustomMetalworks has determined that investments 3 and
4 are mutually exclusive and investment 5 is contingent on either investment 1 or 2 being funded.
d. Now, which alternatives should be selected?
e. What is the present worth for the optimum investment portfolio?
f. What is the IRR for the optimum investment portfolio?
Reconsider the original problem:
g. Determine the optimum portfolio (state the investments selected and the portfolio PW) using (1) the current
limit on investment capital, (2) plus 20%, and (3) minus 20%.
h. Determine the optimum portfolio (state the investments selected and the portfolio PW) using (1) the current
MARR, (2) a MARR of 14.4%, and (3) a MARR of 9.6%.
Transcribed Image Text:12.02-PR004 CustomMetalworks is considering the expansion of their cable fabrication business for towers,
rigging, winches, and many other uses. They have available $250,000 for investment and have identified the
following indivisible alternatives, each of which will provide an exit with full return of the investment at the end
of a 5-year planning horizon. Each year, CustomMetalworks will receive an annual return as noted below. MARR
is 12%.
Investment Initial Investment Annual Return
1
2
5
$25,000
$40,000
$85,000
$100,000
$65,000
$7,500
$12,000
$20,000
$22,000
$17,000
For the original problem:
a. Which alternatives should be selected by CustomMetalworks?
b. What is the present worth for the optimum investment portfolio?
c. What is the IRR for the optimum investment portfolio?
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Step 1: State the given information
VIEWStep 2: g)(1) Determine optimum portfolio using the current limit on investment capital
VIEWStep 3: g)(2) Determine optimum portfolio using the current limit plus 20%
VIEWStep 4: g)(3) Determine optimum portfolio using the current limit minus 20%
VIEWStep 5: h)(1) Determine the optimal portfolio using current MARR
VIEWStep 6: h)(2) Determine the optimal portfolio using MARR=14.4%
VIEWStep 7: h)(3) Determine the optimal portfolio using MARR=9.6%
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