Expand their facilities to accommodate new production

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Acme Inc., needs to expand their facilities to accommodate a new production, line, The investment is $ 1 million dollar, and 80% is financed through the bank for 10 years at an annual interest of 10%. Since the company will invest 20% equity money (own money), the bank has agreed that the first payment of the loan will be done until the end of second year and with nine equal annual payments. The project will incur during the first year in annual operating and maintenance costs of $31,000, which will increase 10% per year. The project will also generate additional income during the first year of $90,000 and it is expected that will increase 20% each subsequent year. Using a MARR of 8% and a planning horizon of 10 years, recommend to the company if they should invest in the project. Use as measures of performance PW, AW, and IRR. Based on your analysis and results, you may suggest to the company further actions in order to reconsider the project.

Reference no: EM131002443

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