EXAMPLE 5-1 An investment of $10,000 can be made in a project that will produce a uniform annual revenue of $5,310 for 5 years and then have a salvage value of $2,000, Annual disbursements will be $3,000 each year for operation and maintenance costs. The company is willing to accept any project that will earn :0% or more, before income taxes, on all invested capital. Show whether this is a desirable investment by using the present worth method. Draw the cash flow diagram

EXAMPLE 5-1 An investment of $10,000 can be made in a project that will produce a uniform annual revenue of $5,310 for 5 years and then have a salvage value of $2,000, Annual disbursements will be $3,000 each year for operation and maintenance costs. The company is willing to accept any project that will earn :0% or more, before income taxes, on all invested capital. Show whether this is a desirable investment by using the present worth method. Draw the cash flow diagram

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q4 solution
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A company is considering the purchase of new equipment for $93,000. The projected annual net cash flows are $36,600. The machine has a useful life of 3 years and no salvage value. Management of the company requires an 11% return on investment. What is the net present value of this machine assuming all cash flows occur at year-end? a. $31,000 b. $4,600 c. ($3,561) d. $35,600 e. $86,996
You are the financial manager of the firm LAB.inc which does research in the medical field, your company needs an estimate of a financing plan for a research project. The research project according to the evaluation of the experts will be spread over a period of 4 years. The annual funding required to conduct this research is $100,000 at the beginning of each year. The firm has set a term of 7 years to raise the necessary funds to finance this research, the nominal interest rate is 8% capitalized quarterly. a. How much does the company need to save at the end of each month to fund this research in 7 years? b. Draw the timeline for this financing plan by presenting all the relevant elements. If the firm wants to start financing the research project today t=0, by taking out a bank loan equal to the VA of all the financing needs of the research project (for the 4 years). c. Calculate the amount of monthly payments that the firm must pay to repay this bank loan for a period of 5 years?
A9. calculate the AW and PW of both project A and project B
structions a learning assessment on the recorded discussion about investment decisions and ng the learning materials uploaded last week, answer the following, in good form: 1. A company considers purchasing a new machine that costs P600,050.00. It is projected that the machine will have a 3-year useful life, with no salvage value. The company is expected to generate P200,020.00 in annual cash flows net of taxes. The expected discount rate on capital is 11% and the tax rate is at 32%. 1. Determine the NPV. 2. Based on the NPV, should the company make the purchase?
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Q3 solution
a) Define NPV (Net Present Value), Payback and IRR (Internal rate of Return). b) Calculate NPV of the following projects. Discount rate is 10%. c) Which project should be chosen and why? Project Mils proj A Cash flows £ proj B Year 0 Year 1 -10 2 Project Mils proj C Cash flows £ Year 0 Year 1 -10 7 Cash flows £ Project Mils Year 0 -8 Year 1 3 Year 2 Year 2 Year 2 5 5 3 Year 3 7 Year 3 2 Year 3 3