Y5

Your companj.r is considering the modernization of its factory in Edmonton, Alberta, in order to increase its productivity. The estimated initial cost of this Project {the modernization of the factory} is $2,200,000. The estimated (end of year} net income (revenue minus all costs except initial costs) of the existing and the modernized factories for the next seven years are given below. The Project life (operation of the modernized factory) is x years. MARE (the minimum attractive rate of return] for the company is 3%. Salvage values are zero for the existing plant and $600,000 for the modernized plant, End of Year Net Income Year Existing Fa etorjr Modern ized Factory 1 $300,000 $1,100,000 2 $?50,000 $1,100,000 3 $700,000 $1,100,000 4 $650,000 $1,100,000 5 $600,000 $1,100,000 6 $550,000 $1,100,000 T $500,000 $1,100,000 Determine: (a) the present value of the net income of the existing plant if x=6 (b) weather or not the Project is justied {economically} if x = 5 (e) the internal rate of return of this Project if x = 7 (d) the minimum value of x that would justify the Project (e) the external rate of return of this Project if x=i