Consider the financial data for a project given in the table below. (a) What is for this project? 18.5% (Round to one decimal place.) Initial investment Project life Salvage value Annual revenue Annual expenses $80,000 6 years $11,000 $30,000 $8,000 (b) If the annual expense increases at a 6% rate over the previous year's expenses, but the annual income is unchanged, what is the new i = 16.4% (Round to one decimal place.) (c) In part (b), at what annual rate will the annual income have to increase to maintain the same obtained in part (a)? The annual income has to increase at [2.9% per year. (Round to one decimal place.)
Consider the financial data for a project given in the table below. (a) What is for this project? 18.5% (Round to one decimal place.) Initial investment Project life Salvage value Annual revenue Annual expenses $80,000 6 years $11,000 $30,000 $8,000 (b) If the annual expense increases at a 6% rate over the previous year's expenses, but the annual income is unchanged, what is the new i = 16.4% (Round to one decimal place.) (c) In part (b), at what annual rate will the annual income have to increase to maintain the same obtained in part (a)? The annual income has to increase at [2.9% per year. (Round to one decimal place.)
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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Transcribed Image Text:**Financial Analysis for a Project**
Consider the financial data provided for a project:
- **Initial Investment:** $80,000
- **Project Life:** 6 years
- **Salvage Value:** $11,000
- **Annual Revenue:** $30,000
- **Annual Expenses:** $8,000
**Questions and Answers:**
(a) **What is \( i^* \) for this project?**
\( i^* = 18.5\% \) (Rounded to one decimal place.)
(b) **If the annual expense increases at a 6% rate over the previous year's expenses, but the annual income is unchanged, what is the new \( i^* \) ?**
\( i^* = 16.4\% \) (Rounded to one decimal place.)
(c) **In part (b), at what annual rate will the annual income have to increase to maintain the same \( i^* \) obtained in part (a)?**
The annual income has to increase at \( 2.9\% \) per year. (Rounded to one decimal place.)
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