The product development group of a high-tech electronics company developed five

Question

The product development group of a high-tech electronics company developed five proposals for new products. The company wants to expand its product offerings, so it will undertake all projects that are economically attractive at the company’s MARR of 20% per year. The cash flows (in $1000 units) associated with each project are estimated. Which projects, if any, should the company accept on the basis of a present worth analysis?

The present worth of project A is: $

The present worth of project B is: $

The present worth of project C is: $

The present worth of project D is: $

The present worth of project E is: $

Project A B C D E Initial Investment $-700 $-1,300 $-500 $-1,500 $-1,200 Operating Cost, per Year $-150 $-200 $-250 $-300 $-400 Revenue, per Year $300 $225 $550 $600 $750 Salvage Value $10 $30 $5 $20 $120 Life 3 years 10 years 5 years 8 years 4 years

Explanation / Answer

Project

A

B

C

D

E

Initial Investment

($700)

($1,300)

($500)

($1,500)

($1,200)

Operating Cost, per Year

($150)

($200)

($250)

($300)

($400)

Revenue, per Year

$300

$225

$550

$600

$750

Salvage Value

$10

$30

$5

$20

$120

Life

3 years

10 years

5 years

8 years

4 years

Net revenue (Revenue - cost)

$150

$25

$300

$300

$350

PVFA @ 20%

2.106

4.19247

2.99061

3.837

2.589

PV of cash inflow

$315.97

$104.81

$897.18

$1,151.1

$906.06

PV Factor of $1

0.579

0.162

0.402

0.233

0.482

PV of salvage value

$5.79

$4.85

$2.01

$4.65

$57.87

Total Cash inflow

$321.76

$109.66

$899.19

$1,155.80

$963.93

Present worth

($378.24)

($1,190)

$399.19

($344.20)

($236.07)

Project

A

B

C

D

E

Initial Investment

($700)

($1,300)

($500)

($1,500)

($1,200)

Operating Cost, per Year

($150)

($200)

($250)

($300)

($400)

Revenue, per Year

$300

$225

$550

$600

$750

Salvage Value

$10

$30

$5

$20

$120

Life

3 years

10 years

5 years

8 years

4 years

Net revenue (Revenue - cost)

$150

$25

$300

$300

$350

PVFA @ 20%

2.106

4.19247

2.99061

3.837

2.589

PV of cash inflow

$315.97

$104.81

$897.18

$1,151.1

$906.06

PV Factor of $1

0.579

0.162

0.402

0.233

0.482

PV of salvage value

$5.79

$4.85

$2.01

$4.65

$57.87

Total Cash inflow

$321.76

$109.66

$899.19

$1,155.80

$963.93

Present worth

($378.24)

($1,190)

$399.19

($344.20)

($236.07)

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