6.

With the present values of phase 1 material and labor costs of $610000 and $5580000, respectively, and phase 2 net cash flow of $9730670, will the company make a minimum 25% return on this investment?

Hint: Enter the difference between the present values of phase 2 net cash flow and the sum of material and labor cost of phase 1. If the difference is positive, then the company makes the minimum 25% return.

7.

What is the present worth of all disbursements and receipts during the life time of the project, evaluated at the beginning of the first year, if the project has the following costs:

Phase 1 labor $2850000 (per year paid at the end of each year)

Phase 1 Material $780000 (paid at the end of the first year only

Phase 2 -years 4 to 10, all costs are paid at the end of each year and include:

Launch $6900000

Insurance $660000

Labor $1850000

Material $620000

The project makes an annual income of $13000000 as a result of sales in phase 2.

Hint: The present value of the net cash flow of phase 2, evaluated at the beginning of first year, must be greater than the sum of the present worth of labor and material costs of phase 1, also evaluated at the beginning of first year. The difference would be the answer to this problem. Make sure to include the sign (-) if the answer is negative.

Remember, if the present worth of all disbursements and receipts is positive, the company will make at least 25% annual return on this investment.