For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box.   A project for a specialized product estimated to have a short market life has the following information. Use the PW method to determine the minimum amount of equivalent uniform annual revenue required to justify the project economically. First cost: $1,200,000 Cost of depreciable property: $500,000 Property class of depreciable property: GDS 3 years Annual O&M costs: %600,000 on the first year, increasing at a rate of 5% per year thereafter Selling price of depreciable property at the end of 3 years: $300,000 Income tax rate: 35%

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
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For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box.

 

  1. A project for a specialized product estimated to have a short market life has the following information. Use the PW method to determine the minimum amount of equivalent uniform annual revenue required to justify the project economically.
  • First cost: $1,200,000
  • Cost of depreciable property: $500,000
  • Property class of depreciable property: GDS 3 years
  • Annual O&M costs: %600,000 on the first year, increasing at a rate of 5% per year thereafter
  • Selling price of depreciable property at the end of 3 years: $300,000
  • Income tax rate: 35%
  • MARR after taxes: 30%

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