A. What is the ERR for this project? Assume that MARR = 15% per year. Is...

A. What is the ERR for this project? Assume that MARR = 15% per year. Is this project considered to be profitable?

Investment cost	$15,000
Expected life	7 years
Market (salvage)	–$1,500^a
Annual receipts	$8,750
Annual expenses	$3,550
^a A negative market value means that there is a net cost to dispose of an asset.

B. What is the discounted payback period?

Expert Solution

*Answer:

*a)

We will have to calculate the discounted values of the outflow.
PV = Cash Flow / (1+Interest Rate)^Duration
Outflow
PV of Investment Cost = 15000
PV of Annual Expenses
=PV(15%,7,-3550)
= 14769.49
Salvage value has a negative sign which means it is an outflow
1500 / (1.15)^7 = 563.91
FV of Outflow = 30333.40

Now we need FV of the inflow
FV = Cash Flow * (1+Interest Rate)^Duration

=FV(15%,7,-8750)
= 96834.49

Now we need the interest rate which equate these two values

96834.49 / 30333.40 = 3.1923
3.1923 ^ (1/7) = 1.1804
(1.1804 - 1) * 100 = 18.04%

The ERR is greater than MARR so the project is justified.

*b)

We will have to discount the cash flow
PV = Cash Flow /(1+Interest Rate)^Duration
The PV and cumulative cash flow is given in the table below

Year	Cash Flow	PV @ 15%	Cumulative
0	-15000	-15000	-15000.00
1	5200	4521.74	-10478.26
2	5200	3931.95	-6546.31
3	5200	3419.08	-3127.23
4	5200	2973.12	-154.11
5	5200	2585.32	2431.21
6	5200	2248.1	4679.31
7	3700	1390.97	6070.28

The cumulative cash flow has turned positive in the 5th year
4+ (154.11 / (154.11+2431.21))
= 4 + 0.0596
= 4.0596 or 4.06 Years.

***Please please like this answer so that I can get a small benefit. Please support me. Thankyou***

Rahul Sunny answered 2 months ago

A project under evaluation has a first cost of $35,000. The firm’s MARR is 15%. Assume...

A project under evaluation has a first cost of $35,000. The firm’s MARR is 15%. Assume the probability distributions for annual benefit and life are unrelated and statistically independent. Calculate the expected value for the Present Worth. Annual Benefit Probability Live Probability $17,000 0.2 5 0.27 19,000 0.3 5 0.27 22,000 0.5 5 0.27 $17,000 0.2 7 0.45 19,000 0.3 7 0.45 22,000 0.5 7 0.45 $17,000 0.2 9 0.28 19,000 0.3 9 0.28 22,000 0.5 9 0.28

Refer to example 6-3. Re-evaluate the recommended alternative if (a) the MARR= 15% per year; (b)...

Refer to example 6-3. Re-evaluate the recommended alternative if (a) the MARR= 15% per year; (b) the selling price is $0.50 per good unit; and (c) rejected units can be sold as scrap for $0.10 per unit. Evaluate each change individually. (d) What is the recommended alternative if all three of these changes occur simultaneously. EXAMPLE6-3 MARR= 10% Annual Output Capacity 120,000 Useful Life= Selling Price= $0.38 Expenses P1 P2 P3 P4 Capital Investment= $24,000 $30,400 $49,600 $52,000 Power= $2,720...

Use the ERR method with ? =%7 per year to solve a unique rate of return for...

Use the ERR method with ? =%7 per year to solve a unique rate of return for the following cash flow diagram. Year Cash Flow 0 -200 1 -140 2 +570 3 -830 4 +470 5 +320 6 -120

Use the ERR method with ? =%10 per year to solve a unique rate of return for...

Use the ERR method with ? =%10 per year to solve a unique rate of return for the following cash flow diagram. Year Cash Flow 0 -200 1 -100 2 +550 3 -820 4 +430 5 +340 6 -160

Compare the 2 sytems at MARR = 10% per year by using tabulated factors. What system...

Compare the 2 sytems at MARR = 10% per year by using tabulated factors. What system costs less over the span of 8 years. Pull System Push System Robot and Support equipement first cost, ($) -1,500,000 -2,250,000 Annual M&O cost, ($ per year) -700,000 -600,000 Rebuild cost in year 3, ($) 0 -500,000 Salvage Value, ($) 100,000 50,000 Estimated life, (years) 8 8

Your borrowing rate is 15% per year. Your lending rate is 10% per year. The project...

Your borrowing rate is 15% per year. Your lending rate is 10% per year. The project costs $5000 and has a rate of return of 12%. 1. Should you take the project if you have $2000 to invest? 2. Briefly discuss the concept of market imperfections in the context of this question.

Determine the FW of the following engineering project when the MARRis 15% per year. Is the...

Determine the FW of the following engineering project when the MARRis 15% per year. Is the Project acceptable? Draw a cash flow diagram. Investment = $10,000 Expected life = 5 years Salvage value =-$1,000 Annual receipts = $8,000 Annual expenses = $4,000

Consider the mutually exclusive alternatives given in the table below. MARR is 5 % per year....

Consider the mutually exclusive alternatives given in the table below. MARR is 5 % per year. Assuming repeatability, what is the equivalent annual worth of the most profitable alternative? (Do not enter the dollar sign $ with your answer.) _____________________________________________________________ X Y Z _____________________________________________________________ Capital investment $50,000 $25,000 $40,000 Annual savings $15,000 $8,000 $12,000 Useful life (years) 10 15 20 _____________________________________________________________________________

To recover your investment and earn a MARR of 10% per year, how long will you...

To recover your investment and earn a MARR of 10% per year, how long will you have to own a business that costs $230,000 to setup, generates $50,000 per year in income and has $15,000 per year in expenses ?

A breakeven analysis for net present worth is performed with a MARR of 15% and a...

A breakeven analysis for net present worth is performed with a MARR of 15% and a useful life of 20 years with the following data: Initial Cost: $750,000 Annual Cost (O&M): $60,000/ year with an annual increase of $5,000 each year Annual Revenue: $80,000/ year with an annual increase of $1,000 each year Salvage Value: $475,000 Determine the following: a. If the project is viable (i.e. if the profit is larger than the cost using net present worth). b. The...

Question