Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 13, Problem 20P
To determine
Calculate the value of investment opportunity.
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You are being asked to evaluate the worthiness of an investment that requires you to spend $100,000 today in return for receiving $30,000 each year for seven years, beginning four years from now. Which of the following statements is TRUE
If the MARR = 10%, I would conclude that this is a profitable investment.
Present Worth = $30,000 X 7 - $100,000.
If the MARR = 10%, I would conclude that this is not a profitable investment.
An advertising campaign will cost $ 200 000 for planning and $ 40 000 in each of the next six years. It is expected to increase revenues permanently by $ 40 000 per year. Additional revenues will be gained in the pattern of an arithmetic gradient with $ 20 000 in the first year, declining by $ 5000 per year to zero in the fifth year. What is the IRR of this investment? If the company’s MARR is 12 percent, is this a good investment?
answer should be=12.4%
You are considering opening a new business
to sell dartboards. You estimate that in
order to start the business, your
manufacturing equipment will cost
$100,000 and facility updates will cost
$200,000. You are able to raise $120,000
from investors with a promise of a 12%
return on their investment. Your bank has
agreed to loan you the remaining $180,000
at a 7% rate of interest. You estimate that
you will bring in $50,000 per year in profit
and that your equipment and facility
updates will last 10 years. Thus, in the
current year (year zero), you incur a
$300,000 cost, and in years one through ten
of your investment, you make $50,000 in
profit each year.
a) What is your Weighted Average Cost of
Capital (WACC)?
b) Using your WACC as a measure of your
discount rate, what is the Net Present Value
of your investment (round to the nearest
dollar – I recommend using Excel for
this)? What does this tell you about the
profitability of your investment?
c) What is your Internal Rate of Return?…
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
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- If D1 = $1.25, g (which is constant) = 5.5%, and PO = $44, what is the stock's expected total return for %3D the coming year?arrow_forwardXTR company is considering investing in Project Zeta or Project Omega. Project Zeta generates the following cash flows: year "zero" = 339 dollars (outflow); year 1 = 197 dollars (inflow); year 2 = 312 dollars (inflow); year 3 = 355 dollars (inflow); year 4 = 192 dollars (inflow). Project Omega generates the following cash flows: year "zero" = 230 dollars (outflow); year 1 = 120 dollars (inflow); year 2 = 100 dollars (inflow); year 3 = 200 dollars (inflow); year 4 = 120 dollars (inflow). The MARR is 10 %. Using the Annual Worth Method, calculate the annual worth of the BEST project. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas) 105.28 156.41 margin of error +/- 20arrow_forwardClorox is thinking about introudcing a new brand of cleaning products. Marketing and developing the new products will cost 585 million dollars. In one year, the new products will generate a cash flow of 32 million dollars. In two years, the new products will generate a cash flow of 59 million dollars. In three years, the new products will generate a cash flow of 83 million dollars. After that, cash flows are expected to grow by 2% forever. If the cost of capital is 11%, what is the NPV of this project (in millions)? (Enter your answer in millions. i.e. 5.5 million, not 5,500,000 )arrow_forward
- You are considering two investment options. In option A, you have to invest $7,000 now and $1,200 three years from now. In option B, you have to invest $3,100 now, $1,700 a year from now, and $900 three years from now. In both options, you will receive four annual payments of $2,100 each. (You will get the first payment a year from now.) Which of these options would you choose based on (a) the conventional payback criterion, and (b) the present worth criterion, assuming 12% interest? Assume that all cash flows occur at the end of a year. Click the icon to view the interest factors for discrete compounding when i = 12% per year. (a) The conventional payback period for option A is years. (Round to the nearest whole number place.)arrow_forwardStock Y is currently priced at $25/share and pays dividends continuously at a rate proportional to its price at a constant rate of 3%. An investor short sells 500 shares of the stock and repays dividends by borrowing extra shares of stock Y. After two months the investor closes out all positions when the stock is priced at $24/share. The continuously compounded risk-free interest rate is 5%. Calculate the two-month profit.arrow_forwardAppledale Dairy is considering upgrading an old ice-cream maker. Upgrading is available at two levels: moderate and extensive. Moderate upgrading costs $6500 now and yields annual savings of $3300 in the first year, $3000 in the second year, $2700 in the third year, and so on. Extensive upgrading costs $10 550 and saves $7600 in the first year. The savings then decrease by 20 percent each year thereafter. If the upgraded icecream maker will last for seven years, which upgrading option is better? Use a present worth comparison. Appledale's MARR is 8 percent. MAK I. VIA,arrow_forward
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