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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Majestic Aircraft Corporation is considering purchasing composite wing fixtures
for the assembly of its signature aircraft. The cost of the assembly system is $3
million with life expectancy of 10 years, annual operating cost of $200.000 with
zero salvage value. MAC anticipates a stream of $1,000,000 in revenue per year
for 10 years from this project. Using annual worth analysis and assuming MAC
uses a MARR (interest rate) of 10 percent, is this investment economically
justified? What is the Net Annual Cash Flow? *
$900,000
$855,000
$800,000
$750,000
Assume there is no annual operating cost, but there are rebuild costs of
$800,000 in year 3 and $1,200,000 in year 7. Assume everything else remains
the same; re-calculate the AW of the project. What is the present worth of all
costs? *
$4,216,880
$4,545,222
$4,424,658
$4,765,213
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