Question

Most likely estimates for a project are as follows. MARR Useful life Initial investment Receipts - Expenses (R-E 12% per year 6 years $7,000 $1,300/year Determine whether the statement "If the profit (R-E) is decreased by 6%, this project is not profitable." is true or false, Click the icon to view the relationship between the PW and the percent change in parameter. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year, Choose the correct choice below. False True A More Info A More Info $2.000, Initial Investment (R-E Useful life $1,000 Capital Recovery Factor To Find A Given P -409 -3096 10% 20% 30% .1095 (51.000)- A/P Y-Axis, PW(12%) Discrete Compounding; 1= 12% Single Payment Uniform Series Compound Present Compound Present Sinking Amount Worth Amount Worth Fund Factor Factor Factor Factor Factor To Find F To Find P To Find F To Find P To Find A Given P Given F Given A Given A Given F FIP PIF FIA PIA AIF 1.1200 0.8929 1.0000 0.8929 1.0000 1.2544 0.7972 2.1200 1.6901 0.4717 1.4049 0.7118 3.3744 2.4018 0.2963 1.5735 0.6355 4.7793 3.0373 0.2092 1.7623 0.5674 6.3528 3.6048 0.1574 1.9738 0.5066 8.1152 4.1114 0.1232 2.2107 0.4523 10.0890 4.5638 0.0991 2.4760 0.4039 12.2997 4.9676 0.0813 2.7731 0.3606 14.7757 5.3282 0.0677 3.1058 0.3220 17.5487 5.6502 0.0570 (53,000) SOCOWN 3. 1.1200 0.5917 0.4163 0.3292 0.2774 0.2432 0.2191 0.2013 0.1877 0.1770 (54,000) (55,000 X-Axis (Percent Change in Parameter) Print Done Print Done

Answer 1

True.

To see , lets first calculate present value of the future cashflows. It is given by

(P/A, i, N)

i=12%,N=6. For this, the PV factor from the given table 4.114. So, we get

Net value=-7000+1300*(P/A,12%,6)

Net value=-7000+1300*4.114=-1651.8.

The net value is negative. The project is already not profitable. Reducing the profit by a further 6% will only increase the loss further and still wont make it profitable.

This can be seen in the graph given, where on no change in profit parameter (X=0), the present worth is already at negative Y-axis (it crosses the Y axis at exactly -1651.8). If we reduce the profit parameter fo -6%, it will shift further down. Check at X=-6%, the Y value is even lower than -1651.8