Answer to Question #219212 in Management for Ting

Question

You are face with making a decision on a large capital investment proposal. The capital investment amount is P640, 000. Estimated annual revenue at the end of the year in the eight-year study period is P180, 000. The estimated annual year-end expenses are P420, 000 starting in year one. These expenses begin decreasing by P4, 000 per year at the end of the year four and continue decreasing through the end of the eight. Assuming a P20,000 market value at the end of the year eight and a MARR of 12% per year, answer the following questions:

What is the PW of this proposal?

What is the IRR of this proposal?

What is the simple payback period for this proposal?

What is your conclusion about the acceptability of this proposal?

Answer 1

$FW=(1+i)n$

$=(1+0.12)8$

$=(1.12)8$

$=8.96$

$PW=(1/(FW))$

$=(1/(8.96))$

$=0.1116$

$Simple payback= (640000/18000)$

$=3.6 years$

The proposal is essentially profitable.