Question

Please respond to the following problems from Chapter 4 found in section 4.9:

Problem 4.2: You are forced with making a decision on a large capital investment proposal. The capital investment amount is $640,000. Estimate annual revenue at the end of each in the eight year study period is $180,000. Estimated annual year-end expenses are $42,000 starting in year 1. These expenses begin decreasing by $4,000per year at EOY 4 and continue decreasing through EOY 8. Assuming a $20,000 market value at EOY eight and a MARR = 12% per year, what is the present worth of this proposal? What is your conclusion about the acceptability of this proposal?

Problem 4.8: A tattoo shop has the following revenue stream over a 5-year period: $9,000, $17,000, $19,000, $11,000 and $22,000. What is the EUAW of this business (assume i=12%).

Check the rubric

Answer 1

4.2)

The cash flows associated with the capital investment proposal is shown in the following table.

Net present worth = $ 82088.3

The net present worth of the proposal is positive and greater than zero. Hence the proposal is acceptable.

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4.8)

EUAW = Net present worth Capital recovery factor

Net present worth = $ 54585.9

Capital recovery factor = 0.2774

EUAW = $ 54585.9 0.2774

EUAW = $ 15142.1 $ 15142