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Improvement and expansion of a production facility are being given economic consideration. At the present time (Alternative A), profits are running at $450,000 per year. Assume a washout in operating profit in cach of years one through 10 so they will remain constant at S450,000 per year. Two mutually exclusive alternatives for improve- ment and improvement combined with expansion are being consid- ered with projected costs and revenues as shown on the following tim diagrams with all dollar values expressed in thousands of dollars. 450 450.. ... 450 ..... 2 10 ... 3) -800 700 700 . 700 2 10 .... 850 -900 -1,300 1,050 1,050 1 ... 10 ) For a minimum rate of return of 15% determine whether the present project "A," improvement project "B," or improvement plus expansion project "C" is economically best using ROR, NPV and PVR. ) Then increase the minimum ROR to 25% from 15% over the entire 10-year evaluation life and re-evaluate the alternatives usin. both ROR and NPV analysis.

Improvement and expansion of a production facility are being given economic consideration. At the present time (Alternative A), profits are running at $450,000 per year. Assume a washout in operating profit in cach of years one through 10 so they will remain constant at S450,000 per year. Two mutually exclusive alternatives for improve- ment and improvement combined with expansion are being consid- ered with projected costs and revenues as shown on the following tim diagrams with all dollar values expressed in thousands of dollars. 450 450.. ... 450 ..... 2 10 ... 3) -800 700 700 . 700 2 10 .... 850 -900 -1,300 1,050 1,050 1 ... 10 ) For a minimum rate of return of 15% determine whether the present project "A," improvement project "B," or improvement plus expansion project "C" is economically best using ROR, NPV and PVR. ) Then increase the minimum ROR to 25% from 15% over the entire 10-year evaluation life and re-evaluate the alternatives usin. both ROR and NPV analysis.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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4-10 Improvement and expansion of a production facility are being given economic consideration. At the present time (Alternative A), profits are running at $450,000 per year. Assume a washout in operating profit in cach of years one through 10 so they will remain constant at $450,000 per year. Two mutually exclusive alternatives for improve- ment and improvement combined with expansion are being consid- ered with projected costs and revenues as shown on the following time diagrams with all dollar values expressed in thousands of dollars. 450 450 450 A) ..... .... 0. 2 10 ... -800 700 700 700 B) 2 ... 10 850 -900 C) -1,300 1,050 1,050 1 ..... 10 1) For a minimum rate of return of 15% determine whether the present project "A," improvement project "B," or improvement plus expansion project "C" is economically best using ROR, NPV, and PVR. 2) Then increase the minimum ROR to 25% from 15% over the entire 10-year evaluation life and re-evaluate the alternatives using both ROR and NPV analysis.
Transcribed Image Text:4-10 Improvement and expansion of a production facility are being given economic consideration. At the present time (Alternative A), profits are running at $450,000 per year. Assume a washout in operating profit in cach of years one through 10 so they will remain constant at $450,000 per year. Two mutually exclusive alternatives for improve- ment and improvement combined with expansion are being consid- ered with projected costs and revenues as shown on the following time diagrams with all dollar values expressed in thousands of dollars. 450 450 450 A) ..... .... 0. 2 10 ... -800 700 700 700 B) 2 ... 10 850 -900 C) -1,300 1,050 1,050 1 ..... 10 1) For a minimum rate of return of 15% determine whether the present project "A," improvement project "B," or improvement plus expansion project "C" is economically best using ROR, NPV, and PVR. 2) Then increase the minimum ROR to 25% from 15% over the entire 10-year evaluation life and re-evaluate the alternatives using both ROR and NPV analysis.
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