Optimistic Most Likely Pessimistic Сapital $90,000 $100,000 $120,000 investment 12 years $30,000 10 years $20,000 $30,000 Useful life 6 years SO Market value Net annual $35,000 $20,000 cash flow MARR (per year) 11% 11% 11%

Optimistic Most Likely Pessimistic Сapital $90,000 $100,000 $120,000 investment 12 years $30,000 10 years $20,000 $30,000 Useful life 6 years SO Market value Net annual $35,000 $20,000 cash flow MARR (per year) 11% 11% 11%

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9EA: If you invest $12,000 today, how much will you have in (for further Instructions on future value in...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Suppose that, for an engineering project, the optimistic, most likely, and pessimistic estimates are as shown in the accompanying table. Develop a spreadsheet to determine the AW for each of the three estimate conditions. It is thought that the most critical elements are useful life and net annual cash flow. Include in your spreadsheet a table showing the AW for all combinations of the estimates for these two factors, assuming that all other factors remain at their most likely values.

Optimistic Most Likely Pessimistic
Сapital
$90,000
$100,000
$120,000
investment
12 years
$30,000
10 years
$20,000
$30,000
Useful life
6 years
SO
Market value
Net annual
$35,000
$20,000
cash flow
MARR (per
year)
11%
11%
11%

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