A proposed project will require the immediate investment of $50,000 and is estimated to have year-end revenues and costs as follows: Cash Flow Estimates Year Revenue Costs |$75,000 $60,000 2 95,000 80,000 100,000 75,000 90,000 77,500 5 60,000 47,500 An additional investment of $20,000 will be required at the end of the third year. The project would terminate at the end of the fifth year, and the assets a estimated to have a salvage value of $25,000 at that time. MARR is set at 15%. A. Using 15% and 20% interest rates, what is the IRR of the project? Round-off in 2 decimal values. B. Determine the ERR of the project. Round-off in 2 decimal values C. Is the investment justified? Explain your answer briefly.
A proposed project will require the immediate investment of $50,000 and is estimated to have year-end revenues and costs as follows: Cash Flow Estimates Year Revenue Costs |$75,000 $60,000 2 95,000 80,000 100,000 75,000 90,000 77,500 5 60,000 47,500 An additional investment of $20,000 will be required at the end of the third year. The project would terminate at the end of the fifth year, and the assets a estimated to have a salvage value of $25,000 at that time. MARR is set at 15%. A. Using 15% and 20% interest rates, what is the IRR of the project? Round-off in 2 decimal values. B. Determine the ERR of the project. Round-off in 2 decimal values C. Is the investment justified? Explain your answer briefly.
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
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 2E
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