Consider the following investment opportunity:Capital Investment (End of Year 0)Expenses (per year)Revenues (geometric series)$450,000$25,000$60,000 in the first year,increasing 5% per yearfollowing$90,000Market value (End of Year 20)Study Period (years)MARR (per year)20 years10%10% Interest TableUse the PW method to make a recommendation about the profitability of this project.Remember to include your calculations and reasoning for your recommendation in yoursupporting work.Recommend investmentO Do not recommend investment.Investigate sensitivity to decision reversal for the estimate of annual expenses. Express youranswer as a percent change (XX.X%) from the original estimate of $25,000 per year. It isimportant to indicate whether the change you report is an increase (+) or decrease (-) fromthe original estimate. Remember to include your calculations in your supporting work.

To conduct present worth analysis we need to formulate the cash flow the investment : Net Cash flows…

Consider the following investment opportunity: $450,000 $25,000 $60,000 in the first year, increasing 5% per year Capital Investment (End of Year 0) Expenses (per year) Revenues (geometric series) Market value (End of Year 20) Study Period (years) MARR (per year) following $90,000 20 years 10%

Consider the following investment opportunity: $450,000 $25,000 $60,000 in the first year, increasing 5% per year Capital Investment (End of Year 0) Expenses (per year) Revenues (geometric series) Market value (End of Year 20) Study Period (years) MARR (per year) following $90,000 20 years 10%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the following investment opportunity:
Capital Investment (End of Year 0)
Expenses (per year)
Revenues (geometric series)
$450,000
$25,000
$60,000 in the first year,
increasing 5% per year
following
$90,000
Market value (End of Year 20)
Study Period (years)
MARR (per year)
20 years
10%
10% Interest Table
Use the PW method to make a recommendation about the profitability of this project.
Remember to include your calculations and reasoning for your recommendation in your
supporting work.
Recommend investment
O Do not recommend investment.
Investigate sensitivity to decision reversal for the estimate of annual expenses. Express your
answer as a percent change (XX.X%) from the original estimate of $25,000 per year. It is
important to indicate whether the change you report is an increase (+) or decrease (-) from
the original estimate. Remember to include your calculations in your supporting work.

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