Question

A) an investment of $500,000 generates annual income of $50,000 for the next 10years with a...

A) an investment of $500,000 generates annual income of $50,000 for the next 10years with a salvage value of $450,000. at MARR=10%, is this a good investment.

B) Determine the IRR.

Homework Answers

Answer #1

ANSWER:

We need to find the present worth of the project .

i =10% and n = 10 years

pw = initial investment + annual income(p/a,i,n) + salvage value(p/f,i,n)

pw = -500,000 + 50,000(p/a,10%,10) + 450,000(p/f,10%,10)

pw = -500,000 + 50,000 * 6.145 + 450,000 * 0.3855

pw = -500,000 + 307,250 + 173,475

pw = -500,000 + 480,725

pw = -19,275

since the present worth is negative it is not a good investment.

B) IRR:

In order to find the irr we will have to equate the pw to zero.

pw = initial investment + annual income(p/a,i,n) + salvage value(p/f,i,n)

0 = -500,000 + 50,000(p/a,i,10) + 450,000(p/f,i,10)

500,000 = 50,000(p/a,i,10) + 450,000(p/f,i,10)

solving via trial and error we get that i is between 9% and 10% and solving further we get that i is 9.35%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider a project with an initial investment of $50,000 and a salvage value at the end...
Consider a project with an initial investment of $50,000 and a salvage value at the end of 10 years of $10,000. The study period is 6 years and the MARR is 10%. Determine the imputed market value at the end of the study period.
Tempura Inc. is considering two projects. Project A requires an investment of $50,000. Estimated annual receipts...
Tempura Inc. is considering two projects. Project A requires an investment of $50,000. Estimated annual receipts for 20 years are $20,000; estimated annual costs are $12,500. An alternative project, B, required an investment of $75,000, has annual receipts for 20 years of $28,000, and has annual costs of $18,000. Assume both projects have a zero salvage value and that MARR is 12%/year. Please show cash flow diagram and please don't use excel functions. Thank you! a. What is the present...
The exempt organization § 501(c)(3) that is classified as a private foundation, generates investment income of...
The exempt organization § 501(c)(3) that is classified as a private foundation, generates investment income of $500,000 for the current tax year. This amount represents 18% of their total income. a) What type of tax is imposed on this organization associated with its investment income? b) Is the receipt of this investment income likely to result in the organization losing its exempt status? Why or why not? c) Would your answers in parts (a) and (b) change if the $500,000...
A company is considering two investment alternatives. Alternative A is a new machine that costs $50,000...
A company is considering two investment alternatives. Alternative A is a new machine that costs $50,000 and will last for ten years with no salvage value. It will save the company $5859 per year and the savings will increase by $2080 each year. Alternative B is a is a machine that will cost $75,000 and last 10 years. The salvage value at the end of 10 years is $25,000. It will save $11681 per year. Find the present worth of...
Suppose a firm has invested $500,000 in plant, equipment and working capital. The investment generates EBIT...
Suppose a firm has invested $500,000 in plant, equipment and working capital. The investment generates EBIT of $120,000 in perpetuity. Annual depreciation charges exactly equal capital expenditures and the firm pays all of its earnings as dividends. The firm’s sales do not grow, but remain stable over time. The firm is deciding on its capital structure by considering all debt levels of 0%, 10%, 20%, 30%, 40% and 50% of current total assets ($500,000). Tax rate is 50%. Cost of...
The estimated capital investment and the annual expenses for three alternative designs of a diesel powered...
The estimated capital investment and the annual expenses for three alternative designs of a diesel powered air compressor are shown, as well as the estimated market value for each design at the end of the common 5 year useful life.  Each of the design provides the same level of service. Given a MARR of 8% per year, determine the preferred alternative using the Incremental Rate of Return (IRR) method. You will receive NO credit if you do not use the IRR...
"Your company needs a machine for the next 20 years. You are considering two different machines....
"Your company needs a machine for the next 20 years. You are considering two different machines. Machine A Installation cost ($): 2,500,000 Annual O&M costs ($): 77,000 Service life (years): 20 Salvage value ($): 79,000 Annual income taxes ($): 65,000 Machine B Installation cost ($): 1,250,000 Annual O&M costs ($): 107,000 Service life (years): 10 Salvage value ($): 46,000 Annual income taxes ($): 45,000 If your company s MARR is 14%, determine which machine you should buy. Assume that machine...
You are evaluating 2 machines the investment of 2 mutually exclusive machines. Each machine has an...
You are evaluating 2 machines the investment of 2 mutually exclusive machines. Each machine has an eight year life and you plan to keep whichever machine you pick for the full 8 years. The firm's MARR is 10%. The cash flows for each machine are summarized in the following table: A B Initial Cost $4000 $3000 Annual Benefit $800 $600 Annual Cost $100 $50 Salvage Value $1500 $1000 Each investment has an IRR greater than the 10% MARR. Using Incremental...
You are evaluating 2 machines the investment of 2 mutually exclusive machines. Each machine has an...
You are evaluating 2 machines the investment of 2 mutually exclusive machines. Each machine has an eight year life and you plan to keep whichever machine you pick for the full 8 years. The firm's MARR is 10%. The cash flows for each machine are summarized in the following table: A B Initial Cost $4000 $3000 Annual Benefit $800 $600 Annual Cost $100 $50 Salvage Value $1500 $1000 Each investment has an IRR greater than the 10% MARR. Using Incremental...
You are evaluating 2 machines the investment of 2 mutually exclusive machines. Each machine has an...
You are evaluating 2 machines the investment of 2 mutually exclusive machines. Each machine has an eight year life and you plan to keep whichever machine you pick for the full 8 years. The firm's MARR is 10%. The cash flows for each machine are summarized in the following table: A B Initial Cost $4000 $3000 Annual Benefit $800 $600 Annual Cost $100 $50 Salvage Value $1500 $1000 Each investment has an IRR greater than the 10% MARR. Using Incremental...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT