You are faced with making a decision on a large capital investment proposal. The capital investment amount is $640,000. Estimated annual revenue at the end of each year in the eight year study period is $180,000. The estimated annual year-end expenses are $42,000 starting in year one. These expenses begin decreasing by $4,000 per year at the end of year four and continue decreasing through the end of year eight. Assuming a $20,000 market value at the end of year eight and a MARR = ɛ =12% per year, answer the following questions. a). Using AW, determine whether this proposal is acceptable.

You are faced with making a decision on a large capital investment proposal. The capital investment amount is $640,000. Estimated annual revenue at the end of each year in the eight year study period is $180,000. The estimated annual year-end expenses are $42,000 starting in year one. These expenses begin decreasing by $4,000 per year at the end of year four and continue decreasing through the end of year eight. Assuming a $20,000 market value at the end of year eight and a MARR = ɛ =12% per year, answer the following questions. a). Using AW, determine whether this proposal is acceptable.

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

You are faced with making a decision on a large capital investment proposal. The capital
investment amount is $640,000. Estimated annual revenue at the end of each year in the
eight year study period is $180,000. The estimated annual year-end expenses are
$42,000 starting in year one. These expenses begin decreasing by $4,000 per year at
the end of year four and continue decreasing through the end of year eight. Assuming a
$20,000 market value at the end of year eight and a MARR = = =12% per year, answer
the following questions.
a). Using AW, determine whether this proposal is acceptable.

b). What is the ERR of this proposal? Is it acceptable?
c). What is the IRR of this proposal? Is it acceptable?

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