Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Investments

Authors: Alan Marcus, Zvi Bodie, Michael Drew, Anup Basu, Alex Kane

1st Edition

0071012389, 978-0071012386

More Books

Students also viewed these Finance questions

Question

Whether the board has jurisdiction to conduct an election.

Answered: 1 week ago