Consider the following investment opportunity:Capital Investment (End of Year 0)Expenses (per year)Revenues (geometric series)$450,000$25,000$60,000 in the first year,increasing 5% per yearfollowingMarket value (End of Year 20)Study Period (years)MARR (per year)$90,00020 years10%10% Interest Table Use your answer to part (b) and the following results to construct a rough graph displayingthe sensitivity of the PW of the project to % change in each of the factors. Label where eachline intersects the x-axis and y-axis clearly.% change to Decision Reversal (breakeven)+ 17.2%Calculated in part bCash Flow EstimateCapital Investment (End of Year 0)Expenses (per year)Revenues (geometric series)Market value (End of Year 20)-10.6%-577.6%To which of the four factors is the decision most sensitive? Explain the reasoning for yourchoice in your supporting work.Capital investmentExpensesRevenuesO Market valueExplain how you would apply the concept of incremental IRR to decide between TheLancelot and The Bella.

Since the question you have posted consists of multiple parts, we will answer the first part for you. If you want any particular question to be answered, please specify the question number or post only that question. Given, To conduct a Present Worth Analysis, we formulate the Cashflow Investment : The Net Cashflow is given as follows :Year 0 : First CostYear 1 to Year 19 : Revenue-Expenses-Depreciation( Revenue is increasing 5% Anually)Year 20 : Revenue-Expenses-Depreciation+Market value after 20 yearsWhere, Depreciation =(First Cost-Final MV)=18,000It is calculated as follows : We get, Therefore, The Present worth calculated is -89,359 The investment is not desirable.

Answered: Consider the following investment…

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Consider the following investment opportunity:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Factor Models

Many attributes might be related to an asset's risk, including market capitalization (size), dividend yield, growth, price-earnings ratio, etc. The use of these traditional descriptors, however, presents a few problems:

Question

Consider the following investment opportunity:
Capital Investment (End of Year 0)
Expenses (per year)
Revenues (geometric series)
$450,000
$25,000
$60,000 in the first year,
increasing 5% per year
following
Market value (End of Year 20)
Study Period (years)
MARR (per year)
$90,000
20 years
10%
10% Interest Table

Use your answer to part (b) and the following results to construct a rough graph displaying
the sensitivity of the PW of the project to % change in each of the factors. Label where each
line intersects the x-axis and y-axis clearly.
% change to Decision Reversal (breakeven)
+ 17.2%
Calculated in part b
Cash Flow Estimate
Capital Investment (End of Year 0)
Expenses (per year)
Revenues (geometric series)
Market value (End of Year 20)
-10.6%
-577.6%
To which of the four factors is the decision most sensitive? Explain the reasoning for your
choice in your supporting work.
Capital investment
Expenses
Revenues
O Market value
Explain how you would apply the concept of incremental IRR to decide between The
Lancelot and The Bella.

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