What is the net present worth or npw of this investment

Reference no: EM13202518

The XYZ Corporation is planning to purchase an extruder. The purchase price of the extruder is $350,000. The company plans to make a down payment of 25% of the first cost of the extruder and to make a 7-year, 10%, yearly payment loan for the rest of the first cost of the extruder. XYZ believes that the extruder can be sold for $75,000 at the end of its 15-year service life.
The new extruder will increase the company's annual income by $90,000. Maintenance and operating costs are expected to be $4,000 during the first year and to increase by $1,200 each year. XYZ uses a MARR of 12% for its preliminary economic studies. What is the net present worth (NPW) of this investment to XYZ?
Hint: You should use 10% to estimate the loan payments and you need to use the company MARR as the interest rate while calculating the NPW. Companies use a minimum attractive rate of return (MARR) to evaluate projects.

Reference no: EM13202518

Questions Cloud

Describe the case that would justify the merger : Two firms currently produce the goods q1and q2separately. Their cost functions are C(q1) = 25 + q1, and C(q2) = 35 + 2q2. By merging, they can produce the two goods jointly with costs described by the cost function C(q1, q2) = 45 + q1+ q2.

Determine a salvage value for the beta system : a. Determine the Equivalent Annual Costs of the two alternatives and recommend the economically superior system.b. Determine a Salvage Value for the Beta system such that the Beta system will have an Equivalent Uniform Annual Cost equal to the Alph..

Bridgeports revolving credit agreement : Calculate the charges associated with Bridgeports revolving credit agreement for the month of April - revolving Credit Agreements

Define benefits and m&o costs happen annually : The company interest rate (MARR) is 15%. The company will make a down payment of 25% of the first cost for the Pick-M-Up and 15% of the first cost for Carter's. The loan will have an annual effective interest rate of 10% with annual payments.

What is the net present worth or npw of this investment : The new extruder will increase the company's annual income by $90,000. Maintenance and operating costs are expected to be $4,000 during the first year and to increase by $1,200 each year. XYZ uses a MARR of 12% for its preliminary economic studies..

What is the resulting equilibrium price and quantity : If the industry is regulated and the regulatory authority forces Widget Corp. to earn only a normal return on investment (which is included in its cost function), what is the resulting equilibrium price and quantity. What happens to consumer surpl..

Explain the importance of mergers in oligopolistic markets : (a) What is mean by that Explain "strategic behavior" and relate that to the "Kinked Demand" model of oligopoly. (b) Explain the importance of mergers in oligopolistic markets. Is there much price competition in an oligopolistic market

What are the causes of market concentration : (a) What is market concentration and how can you know whether a market is concentrated or not (b) What are the causes of market concentration (c) Are business mergers good or bad for the economy Explain why

How to reduce the particular type of market failure : Explore the different ways that government can reduce market failure. Please give a specific example of such a regulation and discuss the extent to which you think it has been successful. What other approaches are available to reduce this particul..

User Account

All Pages