You are required to investigate the following project: The initial Investment at n=0 is $100,000. The project life is 10 years. Estimated annual operating cost : 34,000. The required minimum return on the investment :14%. The salvage value 8,000. What is the minimum annual revenues that should be generated to make the project worthwhile? 97842 52758 81921 45716

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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You are required to investigate the following project: The initial Investment at n=0 is $100,000. The project life is 10 years. Estimated annual operating cost : 34,000. The required
minimum return on the investment :14%. The salvage value 8,000. What is the minimum annual revenues that should be generated to make the project worthwhile?
97842
52758
81921
45716
O O O O
Transcribed Image Text:You are required to investigate the following project: The initial Investment at n=0 is $100,000. The project life is 10 years. Estimated annual operating cost : 34,000. The required minimum return on the investment :14%. The salvage value 8,000. What is the minimum annual revenues that should be generated to make the project worthwhile? 97842 52758 81921 45716 O O O O
Expert Solution
Step 1

Project life= 10 years

Minimum return on investment=14%

Initial costs= $100,000

Annual operating costs= $34,000

Present value of annual operating costs

=$34,000×PVA10,14%=$34,000×5.2161=$177,347.4

Salvage value=$8,000

Present vale of salvage 

=$8,000×PV10,14%=$8,000×0.26974=$2,157.92

 

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