Determine the marr, Valles Global Industries has a small

Determine the marr

Reference no: EM13183269

Valles Global Industries has a small division that addresses the oil business. Currently, they are thinking about a pumping problem in the Durango Quadrant. They have an existing pump that will extract 50% of the known crude-oil reserve in the first year of operation and the remaining 50% in the second year. A larger pump with more power will cost $1.6 million but will take out all the known crude-oil reserve in the first year. The total revenues add up to $20 million as show below.

Current Pump More Power

Investment in year 0 0 $1.6 million

Revenue year 1 $10 million $20 million

Revenue year 2 $10 million 0

If their MARR is 20%, what should they do? Why?

Reference no: EM13183269

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