Question

Question 4 (10 points) Saved A small manufacturing company is considering the addition of one or more of four new product lines. If the total amount of investment capital available for new ventures is $800,000, which one(s) should the company undertake on the basis of a present worth analysis? Assume the company uses a 5-year project recovery period and a MARR of 20% per year. All cash flows are in $1,000 units. Product Lines R1 S2 T3 04 First Cost, $ -200 -400 -500 -700 -50 -200 -300 -400 M&O Cost, $/year Revenue, $/year 150 350 520 770 O T3 Os2 and T3 OR1 and 52 OUA

Answer 1

NPW of R1 = -200 + (150 - 50)*(P/A, 20%,5)

= -200 + 100 * 2.990612

= 99.06

NPW of S2 = -400 + (350 - 200)*(P/A, 20%,5)

= -400 + 150 * 2.990612

= 48.59

NPW of T3 = -500 + (520 - 300)*(P/A, 20%,5)

= -500 + 220 * 2.990612

= 157.93

NPW of U4 = -700 + (770 - 400)*(P/A, 20%,5)

= -700 + 370 * 2.990612

= 406.52

Company should select U4 as it has highest NPW

Last option is correct answer