Capital investment $22,000 $7,000 $29,000 $10,000 Annual revenues $2,500 $3,000 in year one, increasing $250 each year thereafter 10 Annual expenses Useful life (years) 10

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are the president of AMT Enterprises. You have the opportunity to expand your product line to include a new semi-conductor wafer fabrication line. In order to produce the new wafer, you must invest in a new production process. In addition to doing nothing, two mutually exclusive processes are currently available to produce the wafer. Should you produce this new wafer? In other words, which, if either, of the alternative processes should be chosen? Note: IRR for Alternative I = 15.7 %, and IRR for Alternative II = 15.6%. Assume that the capital investment for each alternative occurs at year 0 and that the annual revenues and expenses first occur at the end of year one. Use the incremental IRR method to justify your decision. Your company’s MARR is 15%.

Capital investment $22,000
$7,000
$29,000
$10,000
Annual revenues
$2,500 $3,000 in year
one, increasing
$250 each year
thereafter
10
Annual expenses
Useful life (years)
10
Transcribed Image Text:Capital investment $22,000 $7,000 $29,000 $10,000 Annual revenues $2,500 $3,000 in year one, increasing $250 each year thereafter 10 Annual expenses Useful life (years) 10
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