Consider the financial data for a project given in Table P7 12 TABLE P7 I2 Initial investment $90,000 Project life 6 years Salvage value $10,000 Annual revenue $27,000 Annual expenses $8,000 (a) What is i for this project (b) If the annual expense increases at a 7 rate over the previous year 's exp...

a 90000 27000 8000 P A i 6 10000 P F i 6 0 Solving for i yields i 9420 ...

Consider the financial data for a project given in Table P7.12. TABLE P7.I2 Initial investment............................ $90,000 Project

Question:

Consider the financial data for a project given in Table P7.12.
TABLE P7.I2
Initial investment............................ $90,000
Project life.................................... 6 years
................................. $10,000
Annual revenue............................... $27,000
Annual expenses............................... $8,000
(a) What is i* for this project?
(b) If the annual expense increases at a 7% rate over the previous year's expenses, but the annual income is unchanged, what is the new i*?
(c) In part (b), at what annual rate will the annual income have to increase to maintain the same i* obtained in part (a)?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...