A company that makes food-friendly silicone (for use in cooking and baking pan c
ID: 1138803 • Letter: A
Question
A company that makes food-friendly silicone (for use in cooking and baking pan coatings) is considering the independent projects shown, all of which can be viable for only 10 years. If the company’s MARR is 14% per year, determine which should be selected on the basis of a present worth analysis. The financial values are in $1000 units.
The present worth of project A is determined to be $ .
The present worth of project B is determined to be $ .
The present worth of project C is determined to be $ .
The present worth of project D is determined to be $ .
A B C D First Cost $-1,100 $-2,500 $-5,500 $-6,500 Annual Net Income, per Year $250 $450 $1500 $1500 Salvage Value $7 $4 $8 $8Explanation / Answer
Total worth of project A = -1000 + 250 + 7 = -743 thousand dollars
Net worth = -743 (1 - 0.14)10 = - 164.427 thousand dollars
Total worth of project B = -2500 + 450 + 4 = - 2046 thousand dollars
Net worth = - 2046* (1- 0.14)^10 = -452.783 thousand dollars
Total worth of project C = - 5500 + 1500+ 8 = - 4492 thousand dollars
Net worth = -4492 (1- 0.14)^10 = -994.086 thousand dollars
Total worth of project D = -6500 +1500 + 8 = -5492 thousand dollars
Net worth = -5492 (1 - 0.14)^10 = -1215.38 thousand dollars
Based on the above values of net worth it is seen that project A has the least negative net worth and thus project A should be chosen.
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