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Full solution, no excel Background and Information Berkshire Controllers usually finances its engineering projects with a combination of debt and equity capital. The resulting MARR
Full solution, no excel
Background and Information Berkshire Controllers usually finances its engineering projects with a combination of debt and equity capital. The resulting MARR ranges from a low of 4% per year if business is slow, to a high of 10% per year. Normally, a 7% per year return is expected. Also the life estimates for assets tend to go down about 20% from normal in a vigorous business environment and up about 10% in a receding economy. The following estimates are the most likely values for two expansion plans currently being evaluated. Plan A will be executed at one location; Plan B will require two locations. All monetary estimates are in $1000 units. Suggested Case Study Questions At the weekly meeting, you were asked to examine the following questions from Berkshire's president: 1. Are the PW values for Plans A and B sensitive to changes in the MARR? 2. Are the PW values sensitive to varying life estimates? 3. Is the breakeven point for the first cost of Plan A sensitive to the changes in MARR as business goes from vigorous to recedingStep by Step Solution
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