A company would like to invest on a project. The rate the company uses to justify their investments, i.e. the MARR is 25% per year (compounded yearly).   Their estimations about the projects are as follows: Initial Cost: ($300,000) The Study Period: 15 years Salvage (Market) Value of the Project: 20% of the initial cost   1-)  What is the capital recovery cost, CR? 2-)  Operating costs in the first year are estimated to be ($7,500) and these operating costs are estimated to increase by 5% per

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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A company would like to invest on a project. The rate the company uses to justify their investments, i.e. the MARR is 25% per year (compounded yearly).

 

Their estimations about the projects are as follows:

Initial Cost: ($300,000)
The Study Period: 15 years
Salvage (Market) Value of the Project: 20% of the initial cost

 

1-)  What is the capital recovery cost, CR?

2-)  Operating costs in the first year are estimated to be ($7,500) and these operating costs are estimated to increase by 5% per year. Construct cash flow table and determine the minimum amount of annual revenue ($ per year?) that makes this investment an attractive option for the company? (i.e. what is Equivalent UNIFORM (Annual) Cost, EU(A)C?)

 

 

3-)  Benefits in in the first year are estimated to be $30,000 and these benefits are estimated to increase by 13% per year. Construct cash flow table and determine the net present value/worth of the project, NPW.

 

4-)  What is the simple payback period?

 

5-)  Determine IRR of the project.

 

6-)  Is the Project acceptable? WHY?

 

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