Question

Problem You are considering project with the following financial • Purchase price of $60.00) • Installation and Shipping fee of $15.00 • Estimated annual operating cost $25.000 • Salvage value of the project: 20% of the inntial investment • Project life. 10 years • Minimum acceptable rate of return 10% What would be the minimum annual revenue that must be mun anal revenue that must be venerated to make the project worthike!

Answer 1

Initial costs (P) = 60,000 + 15,000 = 75,000

Annual operationg cost (A) = 25,000

Salvage value = 0.20 * 60,000 = 12,000

n = 10

i = 10%

Annual Worth (AW) = 75,000(A/P, 10%, 10) + 25,000 - 12,000(A/F, 10%, 10)

                                = 75,000(0.1627) + 25,000 - 12,000(0.0627)

                                = 12,202.5 + 25,000 - 752.4

                                = $36,450.1

Thus, the minimum annual revenue that must be generated to make the project worthwhile is $36,450.1.