A company is about to invest in a joint venture research and development project with another company. The project is expected to last nine years, but yearly payments the company makes will begin immediately (a payment is made today, and the last payment is nine years from today). Salaries will account for $50,000 of each payment. The reminder of each payment will cover equipment costs and facility overhead. The initial (immediate) equipment and facility cost is $50,000. Each subsequent year this figure will drop by $5000 until a cost of $25000 is reached, after which the costs will remain constant until the end of the project. a) Draw a cash flow diagram to illustrate the cash flows for this project. b) At an interest rate of 10%, what is the total future worth of all project payments at the end of the nine years?

A company is about to invest in a joint venture research and development project with another company. The project is expected to last nine years, but yearly payments the company makes will begin immediately (a payment is made today, and the last payment is nine years from today). Salaries will account for $50,000 of each payment. The reminder of each payment will cover equipment costs and facility overhead. The initial (immediate) equipment and facility cost is $50,000. Each subsequent year this figure will drop by $5000 until a cost of $25000 is reached, after which the costs will remain constant until the end of the project. a) Draw a cash flow diagram to illustrate the cash flows for this project. b) At an interest rate of 10%, what is the total future worth of all project payments at the end of the nine years?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 3E

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