also solve for the future worth method San Rafael Breweries are looking into investing into a production factory, after rigorous designs and bids submitted by contractors the options arenarrowed down to two options.DMCJ Inc. offers a solution which will cost the company an initial cost of 20,000,000 Php in building infrastructure, 10,000,000 in equipment andannual expenses of 4,500,000 in maintenance, and salary of the plant. At the end of the life span of the plant after 20 years it would have a salvagevalue of 4,000,000. MDB Inc. offers a solution which will cost the company 16,000,000 Php in infrastructure, 8,000,000 in Equipment and annualexpenses of 5,000,000 for maintenance and salary, and a salvage value of 3,500,000. Assuming both plants will produce equal performance in termsof revenue and both have a life span of 15 years, what is the value of the cheaper option if money is at 6%? use the present worth method.

While choosing which investment project will be undertaken, different investment appraisal…

Answered: also solve for the future worth method

Business

Finance

also solve for the future worth method

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1dM

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
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