Question
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,
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 Material $760000 (paid at the end of the first year only Phase 1 labor $2950000 (per year paid at the end of each year.
Please note that phase 1 is 3 years) Phase 2 -years 4 to 10, all costs are paid at the end of each year and include:
Launch $7300000
Insurance $700000
Labor $1600000
Material $850000
The project makes an annual income of $11500000 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.
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started