Calculating the IRR for Project LongProject Long is expected to provide fiveyears of cash inflows and to require aninitial investment of $100,000. Therequired rate of return or discount ratethat is appropriate for valuing the cashflows of Project Long is 17 percent.What is Project Long's IRR, and is it agood investment opportunity?

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You are being asked to evaluate the worthiness of an investment that requires you to spend $100,000 today in return for receiving $30,000 each year for seven years, beginning four years from now. Which of the following statements is TRUE If the MARR = 10%, I would conclude that this is a profitable investment. Present Worth = $30,000 X 7 - $100,000. If the MARR = 10%, I would conclude that this is not a profitable investment.
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2080. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start in 2030 and take five years at a cost of $25 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $3 million, increasing by 2 percent per year thereafter. At an interest rate of 6 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2080.
Three investments are being studied by Bright Star Construction Limited. The table below provides the estimated cash flow for each of the three investments over the next five years. Due to budget constraints, Bright Star can only select one investment out of the three investments. At a MARR (Minimum Acceptable Rate of Return) of 12%, answer the following. Investment 1 2 3 a) b) Initial Cost $9,000,000 $5,000,000 $7,000,000 Expenses per Year $3,000,000 $1,500,000 $2,000,000 Return at end of year 5 $38,000,000 $20,000,000 $29,000,000 Use a rate of return method to determine the economically best investment for Bright Star. Are you expecting different results if the comparison is based on Annual Worth? (Hint: no calculations are needed). c) What are the case(s) in which a rate of return method is recommended? d) Is it always necessary for the alternative with the highest rate of return to be the best alternative?
Tonny is currently evaluating two mutually exclusive projects. Both projects have a cost of capital of 12% and can be replicated indefinitely with the same cash flows. Calculate the EAA (Equivalent Annual Annuity) payment for just Project L. t = 0 1 Project S: L A. $34.12 B. $36.91 C. $38.74 D. $40.23 E. $42.87 t = 0 Project L: (8700) 1 6500 2 2 2500 (8700) 1400 6800 3400
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A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start in 2030 and take five years at a cost of $25 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $3 million, increasing by 1 percent per year thereafter. At an interest rate of 9 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070. Click the icon to view the table of compound interest factors for discrete compounding periods when i = 9%. The present worth of this project is 5 million. (Round to two decimal places as needed.)
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
What is the interest rate of a total balance of $6,000 two years from now if you have a starting balance of $3,000? 42.41% 41.42% 14.24% 44.42% .
A new baseball stadium is being considered to be built in a metropolitan area by High Tech, Inc., at a cost of $50M. It is estimated that the annual maintenance cost will be $100K. The construction company recommends a major renovation every 50 years at a cost of $10M. If the corporation wants to set up a trust fund to pay for the stadium, its maintenance, and periodic renovations for an undefined number of years to come, what amount should be invested in the trust fund if the fun earns an annual interest rate of 6%? Group of answer choices $52,223,000 $60,566,667 $60,666,667 $73,500,429 $58,600,000
Hollygan Co. must choose between gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $110,000, whereas the gas powered truck will cost $40,000. The required rate of return that applies to both investments is 14 percent. The life for both types of truck is estimated be 12 years, during which time the net cash flows for the electric-powered truck will be $23,500 per year and those for gas-powered truck will be $10,000 per year. Calculate the NPV and IRR for each type of truck, and decide which to recommend. (Written work shown please)
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $3 million, increasing by 2 percent per year thereafter. At an interest rate of 6 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070. Click the icon to view the table of compound interest factors for discrete compounding periods when i = 6%. The present worth of this project is $ million. (Round to two decimal places as needed.)

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