Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 18P
To determine
Calculate the total value of investment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that a new machine tool having a useful life
of only one year costs $80,000. Suppose, also, that
the net additional revenue resulting from buying this
tool is expected to be $92,000. The expected rate of
return on this tool is
Consider a training program that will result in a worker receiving a one time bonus of $2,900 two years from now. The cost of the training program is $2,000. What is the rate of return on this investment?
Calculate the net present value of each of the three hypothetical projects described below. Assume the interest rate
is 5%
Project A: You receive an immediate payoff of $1,000
Project B: You pay $100 today in order to receive $1,200 a year from now
Project C: You receive $1,200 today but must pay $20o one year from now
a. Which of the three projects would you choose to undertake based on your net present value calculations?
Explain.
Chapter 13 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
Knowledge Booster
Similar questions
- If you wish to earn 10 percent more from your Microsoft shares next year, how much should you add to your current investment of 8.10, with an average annual rate of 5.80 percent?arrow_forwardJohn will invest $100, 000 in buying the rights to a water well. In perpetuity, the water well makes $20,000 in revenue each year, but it carries an annual cost of $5,000 on maintenance. Also, John must pay the rights of the water well this year, but the revenue and maintenance costs start next year. If the discount rate is 10%, what is the net present value of the investment?arrow_forwarddrop down options: a) should not invest b)should invest c) should be indifferentarrow_forward
- V3 An investment has the following structure: You are required to spend $2,327.41 today, and 20 years later you receive $3,675.37 What is the IRR of this situation? Enter the answer below in \%, minus the \% sign accurate to two decimal places (i.e. 5.267% would be entered as 5.27) What is the NPV of this situation? Enter this in your drobox submission and show your work in your submission.arrow_forwardAs a manager of your company, you are considering to go for a project, with an initial outlay of $200,000. The project has a life of three years and yields (year-end) cash inflows of $ 100,000 in year-1, $150,000 in year-2 and $200,000 in year 3. What is the net present value of the project if the interest rate is 10 percent? Show your steps. Should you recommend to go for the project? Explain in details.arrow_forwardA firm is evaluating an investment proposal which has an initial investment of $8,000 and discounted cash flows valued at $6,000 The net present value of the investment is?arrow_forward
- Question 5 An automobile parts manufacturer is considering whether they should invest in an automatic or manually operated machinery. Both alternatives will have initial cost of $5,000. The automatic machine allows for higher production levels and thus more revenues immediately, however more maintenance costs over time than the manual machine. The manual machine does not produce as many door panels initially but has limited energy and maintenance costs, so its net revenues are reasonably steady over time. The expected revenues of the automatic machine are $2,900 per year for the next 4 years. The operating and maintenance cost will cost $200 now and will increase by $700 per year. For example, the operating cost in the second year is 200+700-S900. The expected net revenues (taking into account salaries and energy cost) for the manual machine are $1,500 for the first year and $1,600, $1,750, and $1,850 for years 2-4, respectively. 1. Calculate the Internal Rate of Return of each…arrow_forwardAn entrepreneur recently learned about a new hotel business that requires an initial investment of $12M and annual cash flow of $2M in perpetuity. The appropriate discount rate is 20%. Now, consider a pretty similar scenario: an Initial investment $12M. Now, in good state, $6M annual cash flows. In a bad state, -$2M annual cash flows. Furthermore, assume that the entrepreneur wants to own at most, 1 hotel (no option to expand). - But things change when we consider the abandonment option. At date 1, the entrepreneur will know which forecast has come true. If the world is in the good state, he will keep the project alive. If bad state, he will abandon the hotel after period 1. - Now, what is the NPV of the project? - What is the value of the option to abandon?arrow_forward3. Your boss has suggested that, instead of a savings of $37,000 annually, it makes more sense to expect a savings that starts at $20,000 in year 3 and rises $2,000 per year to an ending value in year 13 of $40,000. She bases her suggestion on the fact that the experience curve will gradually reduce production costs. What would be the NPV of the cash flow at 4% if you adopt her suggestion?arrow_forward
- Suppose that the cost of an investment is €12000 and its return is €5000 per year for three years. At the end of the three years, the value of the equipment is zero. Calculate the net present value (NPV) if the discount rate is 5%. Give only a numerical answer with no symbols. Use a point (.) as a decimal separator and nothing as a thousand separator (e.g., 2325.37 and not 2.325, 37).arrow_forwardA project that will provde annual cash flows of $2,350 for nine years costs $9,700 today. a. At a required return of 12 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At a required return of 28 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) а. NPV b. NPV C. Discount rate %arrow_forwardSuppose that the net investment flow is described by the equation I(t) = 3t/2 and that the initial capital stock, at time t= 0, is K(0). What is the time path of capital K? If net investment is a constant flow at I(t) = 1000 (Ghana Cedis per year), what will be the total net investment (capital formation) during a year, from t= 0 to t= 1? If I(t) = 3t/2 (thousands of Ghana Cedis per year) – a nonconstant flow – what will be the capital formation during the time interval [1, 4], that is, during the second, third, and fourth years? i) Show that the Cobb-Douglas production Q=AK*L-a where Q is total output, Kis capital stock, Lis labour stock and A and a are positive stants, exhibit constant returns to scale. ii) What returns to scale does Q=5K025 L06 exhibit?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning