Verify that the project is economically attractive

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Reference no: EM13986348

Consider the following investment project with a useful life of 8 years. The marketing department estimates that 10,000 units of the proposed product can be sold per year.

Initial Investment: $250,000

Salvage Value: $25,000

Revenues per unit $12

Expenses per unit $6

a. Verify that the project is economically attractive (before-tax) at a 12% MARR with a useful life of 8 years. Answer: PW = $58,153.50, so yes, economically attractive since PW>0.

b. Determine whether this decision is more sensitive to a change in the estimated number of units sold per year or to a change in the initial investment. Answer: More sensitive to a change in the # of units. Can only take a 19.5% decrease in the # of units before decision changes; can take a 23.3% increase in the initial investment before the decision changes.

Reference no: EM13986348

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