Question

Use X = 22

Q5. For this question, X is the first two digits (from the right) of your student ID. Wolfpack Inc., a textile manufacturing company, is considering opening a production and shipping facility to keep up with demand for its pillows. The facility is expected to require an initial investment of $190,000 and will have a $36,000 salvage value after 5 years. Net annual revenue is estimated to be $100,000 while annual maintenance costs are estimated to be X% of the annual revenue. Determine how sensitive the decision to invest in the new facility is to the estimates of initial cost and annual revenues. Use a MARR of 4% per year and a 5 years study period use the FW method).

Answer 1

Annual Revenue (Annual Inflows) = $ 100,000 Solution: Given Information ; Initial Investment Coulflows) = $ 190,000 value (Inflow) $ 36,000 ennual mainknance lost ( Annual oulflous) = xos. of Annual maintenance Cost = salvage X.p. of Annual Rev. X 100,00 $ 22,000 anneal outflows Ned annual flows a annual inflows 100,000 vroco $ 72,000 Using Preseuf worth analysis (pw) A Az A3 PW= (177) (14)” (fY)* An 7 # f (1+r)" + Aot where, n=5, g= 4.4.2 9.86 0.04 - $ 190,170 to = Initial Investment = 72,000 + A, = A2 = Az = Ay = alat aunul inflows = $72,000 As = (Inflow at the end of year 5) -7.2000 + 36620 AX As = $ 108,000 72,670 72,670 72,500 Pw= 190,000 + (1+0.04) (1+0.04) (1+0-04) 3 (1+004) 108,000 (1+0.04) f f f Pwo -190,000 7 69,230.777 66,568.05+ 64,007.74 + 61,545.90 + 38,768.13 Pw= $ 160, 120.59 and if Since, the present worth (PW) $160,120 comes in positive, therefore the project in financially riable a sultable for investment. cs Scanned with CamScanner