A design firm is considering investing in a software suite that costs $200,000. It estimates that the software will allow it to better present its design ideas and generate an additional revenue of $70,000 per year for each of the next 4 years. At the end of those 4 years, the firm will need to upgrade its software and the software suite would have negligible salvage value. Due to changes in the economy, the design firm is reevaluating its MARR – it is not sure whether it should be 9%, 12%, or 14%. Calculate the present worth at each of these MARRS, and determine for which values of the MARR the investment will be economically justified. Click here to access the TVM Factor Table calculator. 2$ PW(9%): 2$ PW(12%): $ PW(14%):

A design firm is considering investing in a software suite that costs $200,000. It estimates that the software will allow it to better present its design ideas and generate an additional revenue of $70,000 per year for each of the next 4 years. At the end of those 4 years, the firm will need to upgrade its software and the software suite would have negligible salvage value. Due to changes in the economy, the design firm is reevaluating its MARR – it is not sure whether it should be 9%, 12%, or 14%. Calculate the present worth at each of these MARRS, and determine for which values of the MARR the investment will be economically justified. Click here to access the TVM Factor Table calculator. 2$ PW(9%): 2$ PW(12%): $ PW(14%):

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

Problem 1PS

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A design firm is considering investing in a software suite that costs $200,000. It
estimates that the software will allow it to better present its design ideas and generate
an additional revenue of $70,000 per year for each of the next 4 years. At the end of
those 4 years, the firm will need to upgrade its software and the software suite would
have negligible salvage value. Due to changes in the economy, the design firm is
reevaluating its MARR - it is not sure whether it should be 9%, 12%, or 14%. Calculate
the present worth at each of these MARRS, and determine for which values of the MARR
the investment will be economically justified.
Click here to access the TVM Factor Table calculator.
PW(9%):
2$
PW(12%):
$
PW(14%):
Justified when MARR is
%.
Carry all interim calculations to 5 decimal places and then round your final answers for
the PWs to a whole number and for the IRR to 1 decimal place. The tolerance is ±20 for
the PWs and ±0.2 for the IRR.

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