A. Using AW, determine whether this proposal is acceptable.B. What is the ERR of this proposal? Is it acceptable?C. What is the IRR of this proposal? Is it acceptable?Show the cash flow diagram if necessary and complete solution. Do not use excel please. Thank you. You are faced with making a decision on a large capital investment proposal. The capitalinvestment amount is $640,000. Estimated annual revenue at the end of each year in theeight year study period is $180,000. The estimated annual year-end expenses are$42,000 starting in year one. These expenses begin decreasing by $4,000 per year atthe end of year four and continue decreasing through the end of year eight. Assuming a$20,000 market value at the end of year eight and a MARR = ɛ =12% per year, answerthe following questions.

Concept. Annual worth (Aw) , ERR and IRR are capital budgeting methods used to evaluate the…

Answered: You are faced with making a decision on…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 11P

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A. Using AW, determine whether this proposal is acceptable. B. What is the ERR of this proposal? Is it acceptable? C. What is the IRR of this proposal? Is it acceptable? Show the cash flow diagram if necessary and complete solution. Do not use excel please. Thank you.

You are faced with making a decision on a large capital investment proposal. The capital
investment amount is $640,000. Estimated annual revenue at the end of each year in the
eight year study period is $180,000. The estimated annual year-end expenses are
$42,000 starting in year one. These expenses begin decreasing by $4,000 per year at
the end of year four and continue decreasing through the end of year eight. Assuming a
$20,000 market value at the end of year eight and a MARR = ɛ =12% per year, answer
the following questions.

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