Sam may upgrade his electric heating system to a natural gas unit. The investment will be $3000 installed. Assume the interest rate is 9% per year. (a) If Sam wants to recover the initial investment within two year, the monthly cost saving must be no less than $ (Rounding answer to the nearest dollars) (b) If the cost of the natural gas will average $90 per month over the year, instead of the $200 per month that the electricity costs. It will take

Sam may upgrade his electric heating system to a natural gas unit. The investment will be $3000 installed. Assume the interest rate is 9% per year. (a) If Sam wants to recover the initial investment within two year, the monthly cost saving must be no less than $ (Rounding answer to the nearest dollars) (b) If the cost of the natural gas will average $90 per month over the year, instead of the $200 per month that the electricity costs. It will take

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 5P

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Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
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