A project is being planned that has an initial investment at time 0, annual revenues and expenses, and a salvage value at the end of the project lifespan (20 years). The financial values are summarized below: Initial investment amount at time 0 $150,000 Estimated annual revenue $34,500 per year Estimated annual expenses $8,700 per year Estimated salvage value at end of lifespan $10,000 Minimum attractive rate of return (MARR) 15% a. Calculate the capital recovery amount CR(i%). b. Using the annual worth (AW) method, determine whether purchasing the equipment is economically justified. c. Repeat part (a) using the internal rate of return (IRR) method based on annual worth (AW). d. Using the present worth (PW) method, determine the break-even time period after which purchase of the equipment generates a profit. (Find N when PW = 0) year period.
A project is being planned that has an initial investment at time 0, annual revenues
and expenses, and a salvage value at the end of the project lifespan (20 years). The financial
values are summarized below:
Initial investment amount at time 0 $150,000
Estimated annual revenue $34,500 per year
Estimated annual expenses $8,700 per year
Estimated salvage value at end of lifespan $10,000
Minimum attractive
a. Calculate the capital recovery amount CR(i%).
b. Using the annual worth (AW) method, determine whether purchasing the equipment
is economically justified.
c. Repeat part (a) using the
(AW).
d. Using the present worth (PW) method, determine the break-even time period after
which purchase of the equipment generates a profit. (Find N when PW = 0) year period.
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