Project 1 is to build a medium-sized garage for a client over two years. The client will
Question:
Project 1 is to build a medium-sized garage for a client over two years. The client will pay $10,000 as a deposit immediately, $40,000 the year after and $85,000 in the final year. Your company has a small loan of $10,000 with 5% interest to go towards this project that must be paid back in the end. $30,000 of materials will be bought all at once in the first year. As well as a piece of equipment that requires a $10,500 down payment and yearly payments of $1500 following. Labor for the project is $15,000 in the first year and $6000 per year after. Administration costs including taxes are $4000 in year one and $1000 per year after.
Project 2 is the purchase and installation of a new piece of equipment for your company with a life span of 3 years. The equipment costs $50,000 up front and $9,000 to run in the following years. You have the same sources of funding (loan and investor's equity) and administration costs as project 1. The equipment will save your company $25,000 beginning the year after installation and has a salvage value of $12,000 at the end of its lifespan.
a) How much is the initial (net) investment of the company for project 1?
- b) How much is the initial (net) investment of the company for project 2?
Engineering Economic Analysis
ISBN: 9780195168075
9th Edition
Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle