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 17% 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 $-510 $-550 $-820 $-1,650 Operating Cost, per Year $-120 $-180 $-340 $-390 $-490 Revenue, per Year $300 $225 $425 $605 $525 Salvage Value $2 $24 $2 $80 $60 Life 3 years 10 years 5 years 8 years 4 years

Explanation / Answer

Solution:

Calculation of Equivalent NPV of Projects :- NPV= Present Value of Cash Inflows - Present Value of Cash Outflows Project A: NPV= - 700*1 + 300 (PVAF, 17%, 3)-120 (PVAF,17%, 3) + 2 (PVF, 17%,3) NPV= -700 + 300*2.2096 - 120*2.2096 +2*0.6244 NPV= -$301.02 Equivalent NPV= NPV/ PVAF = -$301.02/2.2096 = -$136.23 Project B: NPV= - 510*1 + 225 (PVAF, 17%, 10)-180 (PVAF,17%, 10) + 24 (PVF, 17%,10) NPV= -510 + 225*4.6586 - 180*4.6586 +24*0.2080 NPV= -$295.37 Equivalent NPV= NPV/ PVAF = -$295.37/4.6586 = -$63.40 Project C: NPV= - 550*1 + 425 (PVAF, 17%, 5)-340 (PVAF,17%, 5) + 2 (PVF, 17%,5) NPV= -550 + 425*3.1993 - 340*3.1993 +2*0.4561 NPV= -$277.15 Equivalent NPV= NPV/ PVAF = -$277.15/3.1993 = -$86.63 Project D: NPV= - 820*1 + 605 (PVAF, 17%, 8)-390 (PVAF,17%, 8) + 80 (PVF, 17%,8) NPV= -820 + 605*4.2072 - 390*4.2072 +80*0.2848 NPV= $107.332 Equivalent NPV= NPV/ PVAF = $107.33/4.2072 = $25.51 Project E: NPV= - 1650*1 + 525 (PVAF, 17%, 4)-490 (PVAF,17%, 4) + 60 (PVF, 17%,4) NPV= -1650 + 525*2.7432 - 490*2.7432 +60*0.5336 NPV= -$1521.97 Equivalent NPV= NPV/ PVAF = -$1521.97/2.7432 = -$554.82 Decision: Company should accept Project D because it has higher present worth in comparision to other projects

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.