Raas Hardware is adding a new product line that will require an investment of $1,512,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $330,000 the first year, $280,000 the second year, and $230,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places.

Raas Hardware is adding a new product line that will require an investment of $1,512,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $330,000 the first year, $280,000 the second year, and $230,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Tonny is currently evaluating two mutually exclusive projects. Both projects have a cost of capital of 12% and can be replicated indefinitely with the same cash flows. Calculate the EAA (Equivalent Annual Annuity) payment for just Project L. t = 0 1 Project S: L A. $34.12 B. $36.91 C. $38.74 D. $40.23 E. $42.87 t = 0 Project L: (8700) 1 6500 2 2 2500 (8700) 1400 6800 3400
Consider a palletizer at a bottling plant that has a first cost of $150,000, operating and maintenance costs of $17,500 per year, and an estimated net salvage value of $25,000 at the end of thirty years. Assume an interest rate of 8%. What is the future equivalent cost of the investment if the planning horizon is thirty years? $3,517,000 $3,371,000 $3,623,000 $3,980,000
. Consider the following two mutually exclusive projects: Project A Project B -$15,000 -$25,000 $5,000 $12,000 $8,000 n 10 1 2 3 PW (15%) ? $9,600 The firm's MARR is known to be 15%. Compute the PW (15%) for Project A. $0 $X $X 0. In question 9, compute the unknown cash flow X in years 2 and 3 for Project B. 1. In question 9, which project would you select?
A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment A (year-zero $) Initial investment Net annual revenue $9,800 $3,000 Market value at end of useful life Useful life, years $0 12 Equipment B (actual $) $11,200 $4,000 $0 12 The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 7.69% per year over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is A. $18,355 B. $13,176 ○ C. $12,800 ○ D. $8,783 2. The PW of Equipment B is ○ A. $15,200 B. $26,340 ○ C. $13,577 OD. $19,435
In excel
You are considering a large commercial property purchase. You will need an initial deposit of $100,000. The annual revenues for the property are expected to be $15,000 starting in year 1. Annual operating and maintenance costs are expected to be $8,000 every year starting in year 1. The property is expected to last for 30 years. What is the ROR?
Two machines are being considered to replace an old one. Machine 1 costs $80,000 and Machine 2 costs $120,000. Based on the capacity of these machines, it can be safely estimated that the revenue of Machine 1 will be $30,000 for year 1 and $41,500 for Machine 2. It is also assumed that the capacity could be increased and thereby the revenue by 20% every year for the next few years. The maintenance costs for both machines will be $2,000 and the amount will increase by $5,000 every year for the next few years. According to other companies that use similar machines, these machines are capable of producing products for 5 years before major breakdowns occur. Since this is a rough estimate, you can use straight-line depreciation over the next five years. The marginal tax rate for this company is 40%. a) Assuming an after-tax MARR of 15%, calculate the PW of the after-tax cash flow. b) Perform a sensitivity analysis by changing the after-tax MARR from 10% to 20%. Hint: You can use Excel’s…