Question

In: Economics

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

Expert Solution

Ans: FW = $5858 . Yes the project is acceptable.

Cash flow diagram of the project is show below:

Explanation:

Investment ( P ) = $10,000

Expected life ( n ) = 5 years

Salvage value ( F )= -$1,000

Net receipts ( A ) = Annual receipts - Annual expenses = $8,000 - $4,000 = $4,000

FW = - $10000 ( F/ P , i ,n ) + $4000( F / A , i, n ) - $1000

= - $10000 ( F/ P , 15% ,5 ) + $4000( F / A , 15%, 5 ) - $1000

=- $10000 ( 2.011 ) + $4000(6.742) - $1000

= -$20110 + $26968 - $1000 = $5858

Since the the FW is positive then the project is acceptable.

Rahul Sunny answered 2 years ago

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