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A firm has installed a manufacturing line for packaging materials. The firm plans to produce 45 tons of packing peanuts to sell at $4,000 per ton annually for 3 years, then 50 tons of packing peanuts per year to sell at $4,250 per ton for the next 5 years. The firm uses a MARR of 8% per year. a. What is the present worth of the expected income? b. The line is installed at a cost of $1 million in year 0. Given your answer in (a) as well as this initial cost, is the manufacturing line a good investment, relative to the firm's MARR? Why or why not?

A firm has installed a manufacturing line for packaging materials. The firm plans to produce 45 tons of packing peanuts to sell at $4,000 per ton annually for 3 years, then 50 tons of packing peanuts per year to sell at $4,250 per ton for the next 5 years. The firm uses a MARR of 8% per year. a. What is the present worth of the expected income? b. The line is installed at a cost of $1 million in year 0. Given your answer in (a) as well as this initial cost, is the manufacturing line a good investment, relative to the firm's MARR? Why or why not?

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter19: The Basic Tools Of Finance
Section: Chapter Questions
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Engineering Econ HW4 Q3

A firm has installed a manufacturing line for packaging materials. The firm plans to produce 45 tons of packing peanuts to sell at $4,000 per ton annually for 3 years, then 50 tons of packing peanuts per year to sell at $4,250 per ton for the next 5 years. The firm uses a MARR of 8% per year. a. What is the present worth of the expected income? b. The line is installed at a cost of $1 million in year 0. Given your answer in (a) as well as this initial cost, is the manufacturing line a good investment, relative to the firm's MARR? Why or why not?
Transcribed Image Text:A firm has installed a manufacturing line for packaging materials. The firm plans to produce 45 tons of packing peanuts to sell at $4,000 per ton annually for 3 years, then 50 tons of packing peanuts per year to sell at $4,250 per ton for the next 5 years. The firm uses a MARR of 8% per year. a. What is the present worth of the expected income? b. The line is installed at a cost of $1 million in year 0. Given your answer in (a) as well as this initial cost, is the manufacturing line a good investment, relative to the firm's MARR? Why or why not?
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