Question

Problem 1

Pharmacia, a pharmaceutical company, is considering adding another line of antidepressant drug (Mutually Exclusive alternatives) to their current lines of products. If the total amount of investment capital available for any of the product line of choice is shown on the table below, which one should the company undertake on the basis of rate of return? Assume the company uses a 5-year project recovery period and a MARR of 20% per year. All cash flow estimates are in $1000 units.

The rate of return must be determine using trial and error method

	Product Lines
	Q1	V2	W3	X4
First cost, $	-500	-400	-700	-200
M&O cost, $/year	-400	-300	-400	-200
Revenue, $/year	630	485	699	320

NB: The incremental cash flow equation should be develop based on Present Worth (PW).

NB: The incremental rate of return ?i* must be determine using trial and error method.

First comparison: two guess values are 50% and 60%

Second comparison: two guess values are 18% and 19%

Third comparison: two guess values are 24% and 25%

Fourth comparison: two guess values are 21% and 22%

You can use this website to calculate P/F,F/P, P/A, A/P, F/A, A/F for any percentage i (e.g. 50%, 60%)

https://www.me.utexas.edu/~me353/resources/flash/factor_calculator.html

Answer 1