James is considering a project which would cost $10,000 now. The annual benefits, for 4 years, would be a fixed income of $3,500 a year, plus other savings of $500 a year in year 1, rising by 5% each year because of inflation. Running costs will be $1,300 in the first year, but would increase at 10% each year because of inflating labour costs. The general rate of inflation is expected to be 71% and the company's required money rate of return is 16%. Is the project worthwhile? (lanore taxation

James is considering a project which would cost $10,000 now. The annual benefits, for 4 years, would be a fixed income of $3,500 a year, plus other savings of $500 a year in year 1, rising by 5% each year because of inflation. Running costs will be $1,300 in the first year, but would increase at 10% each year because of inflating labour costs. The general rate of inflation is expected to be 71% and the company's required money rate of return is 16%. Is the project worthwhile? (lanore taxation

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

James is considering a project which would cost $10,000 now. The annual
benefits, for 4 years, would be a fixed income of $3,500 a year, plus other savings
of $500 a year in year 1, rising by 5% each year because of inflation. Running
costs will be $1,300 in the first year, but would increase at 10% each year
because of inflating labour costs. The general rate of inflation is expected to be
71% and the company's required money rate of return is 16%. Is the project
worthwhile? (Ignore taxation.)<

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