A large project requires an investment of $210 million. The construction will take 3 years: $55 million will be spent during the first year, $85 million during the second year, and $70 million during the third year of construction. Two project operation periods are being considered: 10 years with the expected net profit of $50 million per year and 20 years with the expected net profit of $35 million per year. For simplicity of calculations it is assumed that all cash flows occur at end of year. The company minimum required return on investment is 15%.Calculate for each alternative: (a) The payback period (b) The total equivalent investment cost at the end of the construction period (c) The equivalent uniform annual worth of the project (use the operation period of each alternative) Which operation period should be chosen?
A large project requires an investment of $210 million. The construction will take 3 years: $55 million will be spent during the first year, $85 million during the second year, and $70 million during the third year of construction. Two project operation periods are being considered: 10 years with the expected net profit of $50 million per year and 20 years with the expected net profit of $35 million per year. For simplicity of calculations it is assumed that all cash flows occur at end of year. The company minimum required
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