Yaesu America wishes to enhance their already fine line of electronic equipment for commercial and individual use. Their engineering staff has proposed 5 independent,indivisible, equal-lived investments, cutting across different product lines, with each estimated to return the initial investment if it is exited after a planning horizon of 5 years. In addition, each year, Yaesu is projected to receive an annual return as noted below. They have available $1,250,000 to invest and their MARR is 10%.

InvestmentInitial InvestmentAnnual Return1$400,000$50,0002$300,000$36,0003$200,000$25,0004$600,000$69,0005$500,000$55,000

For the original problem:

a.

Which alternatives should Yaesu America select as optimal?b.

What is the present worth for the selected portfolio?c.

What is the IRR for the optimum set of investments?

In addition to the original problem statement, Yaesu America has noted that investment 4 is contingent on investment 2.

d.

Now, which alternatives should be selected?e.

What is the present worth for the portfolio?f.

What is the IRR for the portfolio?

Consider the original opportunity statement:

g.

Determine the optimum portfolio (state the investments selected and the portfolio PW) using (1) the current limit on investment capital, (2) plus 20%, and (3) minus 20%.h.

Determine the optimum portfolio (state the investments selected and the portfolio PW) using (1) the current MARR, (2) plus 20%, and (3) minus 20%.

answer Key

6a: 1,3,5

6b: $90,978

6c: 12%

6e: $79,606

6f: 12.33%

6g: PW = 79.6k; PW=90.9k; PW= 113.7k

6h: PW = 191.6k; PW=90.9k; PW=10.8k