Question

A company that manufactures magnetic membrane switches is investigating three production options that have the estimated...

A company that manufactures magnetic membrane switches is investigating three production options that have the estimated cash flows below in millions of dollars if the interest rate of 15% per year, what is the annual worth of the In-house option in millions of dollars?

In-house

License

Contract

First cost, $

-30

-3

0

Annual operating cost, $ per year

-5

-0.2

-2

Annual income, $ per year

14

1.5

2.5

Salvage value, $

7

-

-

Life, years

10

∞

5
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Homework Answers

Answer #1

In house

First cost , I = - $ 30

Operating cost = - $ 5

Annual income = $ 14

Annual cash flow = $ 14 - 5 = $ 9

Salvage value, S = $ 7

Useful life, n = 10

million

Annual worth of in house option = $ 3.37 million.

Please my humble request to contact if having any query. Will be obliged to you for your generous support. Your help mean alot to me. Please help me thank you.

Although it is not asked but I have calculated the AW of License as well as Contract.

Now calculating AW of License

million

Annual worth of contact = $ 0.5 million

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