Question

Sony Corporation has invested 55.6 million in develoning super-thin TVs based on new, organic ght-emitting diode technology. The company plans to produce 24.000 units each year for the next mive years. The annual production and operating cost is estimated at $350 per unit and will be sold at 300 per unit. Use the internal rate of return method to determine if this investment is worthwhile, assuming the MARR is 5%. (25 points)

Answer 1

Initial investment 5,600,000 Annual Production = 24000 units Annual Production & Operation cost = 350 Ple Annual Total PEO cost= 2 4000 x 350 = 8,400,000 Annual sales price = 400 Plu. Annual Total Revenue=24000 x 400 = 9600,ooo Net Annual Revenue= 9.600,000-8, 400,000 = 1,200,000 Life = spans; MARR= 57. Calculating IRR using Trial & Error Melhiod. Let e = 2% Calculate p.w. at 2% p.W= - 5,600,000 + 1,200,000 (PIA, 2%.5) - = -5,600,000 + 1,200,000 (4.71346) = 56152 The P.W. in positive. Increase rate of interest to 3 % to get negative PW. Calculate PW at 3% p.we -5600,000 +1200000 (P1A, 3%,5) 2-5,600.000 + 1200,000 (4.57971) = -104,348 Using Interpolation, Tek: 207 57.152 - (Tou 348) IRR = 2.34%. As IRR MARR = Reject the catrestment. Investment is NOT work whicle. 56152